I had this to say last week:
The Fed could easily attempt to buy some market peace by issuing a statement that the policy of zero interest rates would be extended for a minimum period of one year. I consider this to be a “high probability" to happen in the next 30 days.
I got it right, but I got it completely wrong. I feared that the Fed could extend the ZIRP language for as long as a year. Not in my wildest dream did I think they could take the extremely risky move of guaranteeing that interest rates will remain at zero for another 24 months. Having been shocked, my thoughts.
*This action is indefensible on economic merits. This move is not motivated by sound monetary policy. It’s motivated by politics. This is a payback to Obama. Shame on the Fed for mixing politics with money.
*We will not go two years with this monetary policy without inflation (measured by core) exceeding the previously stated commitment by Bernanke that policy would not be allowed to rise above 2%. Bernanke and the dove members that signed onto this policy have lied to the American people. Bernanke has done it on 60 Minutes. He has done it to Congress. Shame on all of them.
*The Fed has taken away its ability to react to a situation that would require them to tighten. We are now on a one-way street. There is no way to turn around anymore. I believe the Fed has abdicated its responsibilities under the dual mandate. The have no ability to react if inflation should pop up in a year from now. Even worse, they have no policy options should there be a run on the dollar. The possibility of a run on the buck has gone up exponentially as a result. Should that happen, the Fed will have left us economically defenseless. Shame on the Fed for making us more vulnerable to a speculative attack.
*The stock market run up this afternoon is the Bernanke Put at work. Lets be clear on the consequences of Perpetual ZIRP. From this day onward every buy and hold investor who acquires Treasury debt with maturities of less than five-years is GUARANTEED TO LOSE MONEY. So if you accept that, then stocks have to look better. Shame on the Fed for debasing money and punishing savers.
*We have only one monetary policy. Juice stock multiples. This is the farthest thing from “Progressive” economics as you can get. We have a policy in place that is designed to make wealthy people wealthier. At some point there will be a social cost to this. The fires and riots in London were triggered by a shooting. Underneath is a rage between haves and have nots. Shame on the Fed for rigging the outcome for fat cats. Double shame on them for when our streets are filled with rage.
*Zero interest rates also means Zero risk. I think the change in Fed language will exacerbate recent short-term funding liquidity. I think we will see this appear (again) sooner versus later. I think Zero interest rates discourages leveraged investing. This policy will dry up liquidity in the asset backed market (Shadow banking system). I'm looking for evidence of this in the Euro Dollar funding markets. I am also looking for it to occur in the Term Commercial Paper market. Shame on the Fed for setting us up for this systemic risk.
*Brazil, Argentina, Korea, Indonesia are going to scream bloody murder over perpetual ZIRP. Russia is likely to get downright ugly with their rhetoric. I wouldn’t be surprised if they took this opportunity to vote with their feet and just abandon the dollar as a reserve holding. China will also make noise. They will make more calls for a new international currency to replace the dollar. The Central bankers in Japan and Switzerland are puking in the trashcan over this. Bernanke is exporting US deflation to them. Shame on the Fed for pursuing Beggar my neighbor policies. They deserve all the global criticism they are about to get.
*Bernanke bills himself as a student of the Depression. He has said over and over that he would not make the mistakes that the Fed made in 1937 when a tightening of monetary policy triggered another wave of deflation. I think the history books will look at the Fed and August of 2011 and draw a similar conclusion. At a critical time in history the Fed has taken action. The mistake of 72 years ago DID cause a recession that lasted a few years. The mistakes of 2011 will mark a point in history where America turned a corner downward. One that will take a few decades to recover from. The history books will shame Ben.
The theory goes that because borrowing will be cheap a lot of dollars will be borrowed and hence more dollars available to buy the same amount of stuff will make stuff cost more in dollar terms.
However, it did not work that way in Japan. When Japan went ZIRP, the Japanese people saved more, borrowed less and Japan got their last two lost decades and a stronger Yen even though interest rates were near zero.
In the US there will be two camps, those that are allowed to borrow cheaply and those who are NOT allowed to borrow cheaply. The Fed member banks are after all simply distribution arms for the powers that be, deciding who gets money and who does not get money. The people/entities that are allowed to borrow cheaply will buy up assets and the rest of the people/entities will see their assets purchased by the insiders,their buying power diminish and their taxes raised... throwing them from middle class to slave class.
Rates are at zero due to zero growth. A win win. Could Bernank pls explain how his Banks make money in this collapsing rate and demand environment? I see Many FDIC bank closings for yrs to come.
I am of course not the Bernank, but the Fed would not mind if all of the non-Fed owner banks (the banks that own the stock shares of the Fed) to close so that the Fed banks have a monopoly on fiat money distribution and can dictate terms. If the US government becomes more indebted to the Fed (as if that is possible) through increased borrowing to pay off FDIC insurance claims, all the better.
This whole thing is about power consolidation through money distribution power, the gathering of assets and being able to dictate terms, such as the laws and treaties within and between governments, who is rich and who is not, and how energy, food and labor are allocated around the world.
It is a big job to run the entire world from Switzerland (BIS) with only banking governorships and bank-fiat-distributors to do your work.
You have to buy governments, buy armies, implement wage and price controls globally, allocate global resources and make sure there is no competition to your power by keeping everyone else from organizing against you.
A couple of well placed nukes in finacial centers, including Basil would fix the problem, but good people do not do that ... and good people do not do the things necessary to be in power in this world, anyway.
I am DaBernank, and I can tell you that my portfolio did not like th last 3 days of trading, we needed a little juice to the markets, not a recovery summer but a recovery Tuesday afternoon. I hope you bought the fucking dip and converted grandma's savings to NFLX.
Basel is a nice city, leave it alone. Besides the data you seek to destroy does not reside at a single location.
Could this be a stealth support program for munis by forcing "safer" investors into them as they purposely yoyo equities? Seems too simple to believe it's just an equities game.
You had me at "excuse the rant".
Beautiful commentary Bruce. Spot on!!!
Bravo man.
This is brilliantly written Bruce and dead on. We all knew years ago that this would not end and the Fed would never tighter unless we were on the verge of either hyperinflation or until the Stay Puft Bubble to end all bubbles was recreated.
You are 100% correct that the Fed which is not supposedly not a political body is entirely political and not only a tool of illusion for which ever administration is in power to feign prosperity but a 4th branch of the government never intended by the Constitution and arguably the most powerful considering the wealthiest individuals in our nation direct it's actions which are complete opposed to the interest of the general populace.
This is a disgrace and Bernanke is using this as an experiment in ego dead set on proving to the economic world the Keynes theory gone plaid works and he will NEVER alter his course and is risking the very fabric of our country. No individual was ever intended to be this powerful in our constitution. The architecture was specifically created to distribute power and even make the executive branch as powerless as possible unless faced with mortal imminent danger or enemy take over by a foreign power.
This is a vanity exercise and is 100000% a nationalization of the the U.S. stock market in conjunction with both price fixing and central planning. It is intended to force everyone to one side of the boat when that side of the boat is the one that is afflicted with wormwood for decades and continually sinking. You call it shameful and I call it DISGUSTING. This is a big high five to the President so he can be rewarded for allowing the branch more powerful than him to enrich themselves and later donate.
I am appalled to call these people Americans.
From its 'humble and Congressional Recess" beginnings, the FED has evolved into a supra national bank of banks. Wether by design or natural greed it administers the machinary of wealth extraction though world wide debt creation.
Regardless of nationality, it gives those who would govern nations the economic means by which they obtain and use political power. The beaty and elegence of its functionality is to admired, if it were not also the primary tool for economic enslavement.
The Fed is most cetainly political. Not satisfied with the institution of the Senate as representing the interests of the elte, the Fed was formed to provide political controls on money for the elite, who are the only constituents of the Fed and whose interests are zealously represented and cared for. The "tell" is the phony twin mandate, which has never been served. The mandate is to make money for the elite, preserve their wealth and status at all costs, and to tax the middle class via things like ZIRP whenever it suits them to achieve these goals. The Fed should be abolished, simple as that.
think Dr. Paul is spreading a nice 'non-threatening' meme on this one: no need to abolish it, just give it some competition. the problem with the Federal Reserve System is their monopoly power over money creation.
if peeps wish to be treated like debt slaves without noticing their chains, more power to them, let them continue to solely use FRN's if they wish, their choice. but those who see the chains and simply wish to be free from them should be given the opportunity to do so without being treated as criminals. if i wish to enter the Matrix voluntarily to make an exchange with one who only wishes to exchange FRNs, cool, i'd be happy to do so if & when i see a positive benefit to doing so.
we were all born free, sovereign individuals and each & all should have free choice what we decide to use as play money. it's all very silly when you think about it.
"The Fed is most cetainly political."
Here, all fair minded people can agree.
It (the Fed) was created by the government so that they (the politicians) would not have to make the tough choices on war & welfare which have always been the Treasury's largest expenditures.
It was a way for the pols to avoid making tough & responsible decisions for the good of the country as a whole.
It is not only unethical, it is immoral and a crime against nature. The son is not responsible for the debts of the father, the debts are taken out of the estate the father leaves behind. They are not taken from the children of the son yet to be born.
well said, brother nmewn. only reason i'm still here is to give some voice to those yet to be born, so that they can be a little more free from the yoke to make their own decisions & live their own lives not so encumbered by our mistakes and those who have come before us.
the linking back through our ancestors should be one of wisdom and lessons learned instead of one of perpetual servitude to old worn-out mythologies.
Amen, and very well said Bruce.
passed by tv with Dick Grasso interviewed by Neil Cavuto on FxBzCh ...
... made some interesting observations.
disclosure .... tend to be cynical of Grasso as former supreme member/ grand klagon of 'club' ...
do wonder if BK here is on to something that foreign non-ECB central bankers other than ECB (who get a gift of 2 years of zirp) are going to be outraged ..... unintended consequences produce a US$ crisis finally? hmmmm
"BK here is on to something that foreign non-ECB central bankers other than ECB (who get a gift of 2 years of zirp) are going to be outraged"
Unbelievably, it appears that if change is to come it will have to come from an external force. This is ominous.
So as i said "the Fed can go away now." replce them with a currency board and have hot-totti's at Empire Brewing. Just like the old days. Ahh, Lincoln. Now THAT was a President.
Yes, Lincoln created the union by taking away state and individual rights and oversaw the bloodiest war in American history in his effort to consolidate federal power.
What a guy.
EXACTLY! What was wrong with that?
Here is some more lunacy from a Ph.D. who thinks the Fed should do MORE:
http://www.bloomberg.com/news/2011-08-09/rogoff-says-fed-likely-to-embar...
Why does the article talk about "shame"? Surely a more fitting punishment such as unemployment and destitution - currently the state of tens of millions of americans - should be carried out on the parties mentioned.
Bruce, well done. Too bad The Bernank doesn't read his mail, or I'd send a couple hundred copies of this to him.
You can contact him indirectly, via comment at Blythe Masters' blog. Please be respectful.
AHHHH come on mom, now I gotta ride the short bus for two years?
A few massive mistakes in the article.
#1: Quite clearly there will never be a recovery. Inherently, there cannot be a recovery. The only positive possibility is a termination... of the federal reserve, of the federal government, of the international ganster bankster grip on the population, of the power of the military, medical, financial, industrial process. Don't diss this possibility entirely. Remember, the other evil empire did in fact vanish from existence in very recent history. To imagine the USSA would go the way of the USSR is perfectly plausible... and utterly good.
#2: The article is completely wrong about the notion that a "dollar run" is bad. It is of primary importance to return to real, physical, honest money AKA gold, and a dollar run could bring that about sooner (and therefore with less aggregate pain) than later. Furthermore, Bernanke and the federal reserve have never been honest about anything before, so there is no reason they could not reverse their position for the 666th time and raise rates. However, they won't, because their solution to grossly overwhelming debt is to purposely destroy the dollar.
In short, the USSA is vastly beyond the point of no return, which means zero ways exist to "fix the problem" in a monotonic or continuous way. The only possible fixes are radical discontinuities like the end of the federal reserve and federal government of the USSA.
"The only possible fixes are radical discontinuities like the end of the federal reserve and federal government of the USSA."
Er, this is a cure like chemotherapy is a cure. You've glossed over a lot of bad things here.
No, chemotherapy is a continuous process.
A discontinuous process is more like cutting out the cancer, or transferring your brain into another body/host/machine.
+1000 honestann. You're 100% spot on.
OK. I can get behind those ideas. When do we begin?
As soon as enough participants decide to cut their consumption in half.
As usual Bruce, you are spot on...........Thanks
Shame on Bernanke? He is doing his job, enriching the oligarchs. We have an unelected star chamber making monetary policy, it's not exactly meant for the common man. It's a good analysis Bruce but it's like trying to shame a serial rapist, he knows what he is doing and doesn't give a good God damn about your opinion. If Zimbabwe Ben could flip a switch and instantly convert all wealth in the US into the hands of the big boys he would in a heart beat. They exist to pillage, nothing more. Would any sane person ask Genghis Khan to build aqueducts and spread civilization?
Ben's just an economic parasite doin' what parasites do! Shame is on us that we allow the Fed, the banks, and our love to spend your money politicians to continue to rape us.
The problem with Ben's problem is that it destabilizes other nations and their banking systems. I look for a lot of nations to respond to this with capital controls in some fashion. Then we get to the part where us serfs pay at the gas pump and grocery store.
So begins the policies of desperation on which the confidence of markets in the issuer of the US dollar will fall.
The dollar already has fallen vs gold but no currency is tied to gold. So all central banks will attempt to degrade their fiat currency relative to the dollar. It's bugger thy neighbor time! The currency wars are just heating up and the Fed has just rung the bell again to buy gold and abandon cash and bonds.
The next crisis will be the falling dollar.
I had one fall out of my pocket yesterday and determined it wasn't worth the effort to bend down and pick it up.
I'm sure a crackhead found some marginal utility therein.
I missed all of the fun this afternoon
what changed the sentiment after the release of the minits such that an iniital cliff dive was followed by a moonshot?
besides infinite zirp, there is now expectation of qe3 announcement at Jackson Hole on 8/26. Unlike last year when it was a surprise, this year the announcement is anticipated, so there's a likely run-up going into that date. It will likely be a sell the news event as the market will have run up significantly beforehand.
Totally run up by the "Hope and Change" stock system. No longer capitalism or a free market. Where it took all day to see the market lose 600 points on a downgrade of our AAA rating.
Contrast that with the hour and a half to race up 400 points the very next day on ZIRP extended. This can likely only be a result of the Fed itself buying futures.
"Money will not be expensive the next 2 years".
I got that part e.g to the moon but why the dive first?
When the FEDs announced that economic outlook is poor, the short sellers jumped in, driving the market down momentarily before the FEDs came in to the market in a massive intervention. It was a bloody short squeeze.
All this will not matter in a few days when the fire spreads from London, to Rome, to Madrid, to Lisbon.....
Just means unemployment will decline as TPTB hire lots more police, security guards, and firemen (at austerity trimmed wages) and they buy up all those now vacant lots cheap to build big new townhouses.
Excerpt from: http://english.aljazeera.net/indepth/opinion/2011/08/201189165143946889....
Emphasis is mine.
No QE3, so panicking and screaming kiddies on the trading floors. Then they got silent with the ... ehhmmm ... great prospect of free money.
Title will hopefully change to "On perpetual Perp" IF there is ANY justice left in this forsaken land.
That's a negatory, good buddy.