Time For Bernanke To Retract His Sworn Testimony To Congress

Tyler Durden's picture

Three months ago, as part of our ongoing explanation of what happens next to the Fed's balance sheet (which is now established as official canon in advance of the December 12th FOMC, when Bernanke will effectively announce QE4 consisting of $40 billion in MBS and $45 billion in unsterilized TSY purchases as we predicted the day QE3 was announced), we said that "the Fed will continue increasing its 10 Yr equivalents by roughly 12% (of the total market) per year, for at least the next 3 years, at which point it will own 60% of the entire Treasury market. It means that the Fed will monetize all gross long-term issuance every year for the next 3 years." Most looked at the bold sentence without it registering just what it means. Perhaps, now that the "serious" media has finally taken on the topic of applying a calculator to the one driver of all marginal risk demand, it will register a little better.

In a Bloomberg story titled, appropriately enough "Treasury Scarcity to Grow as Fed Buys 90% of New Bonds" we read that "the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co." Actually that's incorrect and it is more like 100%. What is however 100% correct is what the bolded means in plain language: it is now accepted that the Fed will outright monetize all gross US issuance. Let us repeat this sentence for those who just had flashbacks to Adam Fergusson's "When money dies." The Fed is now monetizing practically all net new debt. So what did the Chairman say about this absolutely certain eventuality back in 2009 to Congress...

Our only question: was the Chairman simply lying of lying under oath?

And finally, because it appears it takes the MSM between 3 and 36 months to catch up to Zero Hedge, there is another relevant question that we posed 3 months ago:

Another way of visualizing this is how many assets as a percentage of US GDP the Fed will hold on its books. Currently, this number is 18%. By the end of 2013, the Fed's historical flow operations will be accountable for 24% of US GDP.


Why is this important? Simple: when the time comes for the Fed to unwind its balance sheet, if ever, the reverse Flow process will be responsible for deducting at least 24% of US GDP at the time when said tightening happens. If ever.

Hence no unwind. We are confident to state this, just as we were confident with our other forecast from three months ago:

What is scariest, is that as of this moment, all of this is priced in. Any incremental gains in the stock market will have to come from additional easing over and above what Bernanke just announced.

What Bernanke implicitly, and in one week explicitly, has announced is that it now takes $85 billion in monthly Flow injection from the Fed just to keep the market from collapsing. Oh, yes, and the market still has to surpass the highs seen the day after QEternity was announced.

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Urban Redneck's picture

How about the non-US-citizens TAX THE FUCKTARD THIEVING AMERICAN ELECTORATE for the stupid system they empower and the wealth they already steal from the rest of the world through the monetary debasement they export?

Or we could just let the NWO crowd win and equalize the world at $10,000 per year, at which point the bloviating bovine buffoons will be starving to death en masse because $10,000 won't even buy 3 months worth of manuFATured McFood.

The fundamental problem that Americans will have to solve in the next century is what Americans can sell abroad for the energy and iCrap their existence is so dependent upon, when the rest of the world doesn't want rolls of Uncle Ben's finest anymore?

The Chinese survived for decades in Kowloon walled city, whining New Yorkers can't even go a couple days with far more basic services at than less 1/10 the population density.





ATM's picture

The reliance on "taxes" diminishes each day. In fact the government doesn't need any taxes as long as it can issue debt purchased by the fed (with GS as an intermediary so the banksters can get thier risk free return). 

Taxes are nothing but a fear tactic that the government dare not give up. They like the threat as it is used to coerce. But they don't need taxes to function. Look at Cuba.they don't have taxes but they don't really need any additional coercive power now do they?

literarybeer's picture

you put way too much faith in the sheeple.

TwoShortPlanks's picture

Greenspan accidentally slipped and stuck his dick in your freedom. He assured you the love would trickle down soon, but it didn't, and look what he spawned, a banjo playing retard economy.

Bernank is doing the same thing. He accidentally slipped and stuck his dick in your currency, giving the fucktard economy a fucktard currency as a brother.

The fucktard economy and fucktard currency are now inbreeding a fucktard treasury bond.

Gold = Economical and Financial Eugenics.....DELIVERANCE BITCHEZ!

old naughty's picture

Ben does not have to retract anything.

He'd continue to say he didn't do all those things...

and his replacement will 'sworn' same, 'do' same.


TwoShortPlanks's picture

These financial and economic tards are racing to the bottom of the economic gene pool, where we'll drown under an ocean of Derivatards.

slvrizgold's picture

That's absolutely hilarious TwoShortPlanks.   The economy and the currency are like when John Malkovich played Lennie in "Of Mice and Men."    Bernank and Greenie are like Lennie -  OOOPS, duhhh, I accidentally killed da little furry animal!

Anasteus's picture

Yes, you're right. The fact that a small group can literally own asses of many demonstrates how we, stupid goyim animals, are incapable of taking responsibility for our own affairs and overall acting as human beings. The Congress puppets are to be blamed in the first place, that's without dispute, but the fooled sheeple have done their work as well.

Anyway, there should be no room for fear or undue outrage but rather for consciousness, patience and appropriate acting. There is still a long road for us to become human beings but there is no other choice.

A good news, however, is the fact that the leading puppet masters, thanks to their innate pathological arrogance, ignorance and superiority, overlook a psychological threshold one can bear. Being trapped in a cage of greed, self-importance and power hunting veiled by 'historical mission towards centrally planned fortune' they are honored to be heralding and embodying, they are not able to 'hear grass growing'. Despite many examples in history, and particularly socialism, they cannot grasp that by enforcing more and more restrictions on people the threshold will just be sooner exhausted. This unlearnable ignorance together with the false belief they can manage all the world on their own is their fatal limitation.

GOSPLAN HERO's picture

... and Honey Doo Doo inherits the earth.

caconhma's picture

The situation becomes bizarre.  Now, there will be no need to sell Treasury Bonds to anybody. Fed will buy them all. So, what are consequences? Flood of money to spend without any new goods created.

What about the rest of the world (China, Japan, Russia, etc.,) who own zillions of these Treasury Bonds? They can panic now at any moments and will dump these Treasuries for something more valuable than worthless IOU. My guess, regardless of what FED and ECB will do, there will be a stampede to get these Treasuries exchanged for something more valuable: there will be monetization of Treasuries into commodities.

Now, what about US$ as a reserve currency? Now, we are talking about US$ default.

As for “paper” gold, who wants to keep paper if there is no real gold to back them up?

WOW, we are moving into a default. I don’t think that FED calculated and/or realize the consequences and the President and the Congress have any clue of what is about to happen.


CrazyCooter's picture

With the caveat that all that new money ... will be going out the door as (1) medicare/medicaid, (2) social security, (3) interest with no new bonds to buy, and (4) dept of defense. The rest is mostly rounding errors.

So, the speculative aspect it cornered ... no commodities and no treasuries (see up post) ... so, I am curious to see how this unfolds.

Long rice, frozen salmon, and small towns in the middle of no where.



Central Bankster's picture

Bernanke Gold smackdown in progress during the wee hours of the night.  LOL 8000 contracts into illiquid market.  Wow!

Poor Grogman's picture

Thanks for the tip just loaded up, wish me luck...

samcontrol's picture

" what is about to happen". time frame?

formadesika3's picture

<<Great point.  This is why all that monetizing is against its charter.

When it's important, you have to lie.  And break the law.  And violate your charter.

And accidentally own everything.>>

It's always better to apologize than to ask for permission. When you can blandly state, "Nobody could have foreseen...", that absolves all guilt.

TheObsoleteMan's picture

If you do a quick check, you will see where Congress annulled that part of the Charter back in the 1980s. It also granted the Fed other powers and privileges, like buying foreign debt and swaps. They were preparing for today thirty years ago!

smlbizman's picture

milton...that is the goal.....turn the words off and study the actions....these guys know exactly what they're doing...try discharging debt owed to the feds...

Stoploss's picture

The sands of time are running low for the Bernank..

JPM Hater001's picture

"How long until Fed owns us all, lock stock and barrel?"

How Quaint.  You think you were born free.

Urban Redneck's picture

The Fed doesn't own everything, and it's not intended to. The Fed is the ultimate Bad Bank, and an asset OF and TO, the member banks which own the Federal Reserve system. The Federal Reserve used to keep the bad assets off-balance-sheet, two double-entry-book-keeping steps removed and shielded from the licensed member banks. Now, treasuries are simply expansion/recognition/realization of the Bad Bank on the Federal Reserve's own balance sheet.

The benefit of the dilution of the money supply accrues and flows to the debt and equity owners of the member banks at the expense of participants in the USD based economy. The debt and equity owners of the member banks then convert the proceeds into equity or tangible assets more resistant to the debasement of the currency.

They win, everyone else loses, and when scheme can no longer be maintained, the debt serfs with have FuckTons of paper saying Federal Reserve Note (see Uncle Ben for Payment), and the Frederal Reserve will have FuckTons of paper saying US Treasury Note (see US taxpayer/debt serfs for payment), and the banksters will have Mansions, Factories, Cars, Gold, Art, Wine and a good laugh at everyone else's expense, because they (and their wealth) will be on the outside of the Circle of Stupidity.


Silver Garbage Man's picture

Reason #1 for holding physical precious metals... Not going to be diluted... Or vaporized...
I sleep like a baby

San Diego Gold Bug's picture

I can't take delivery of my next .308 soon enough (a Springfield .308 Socum).  The Gold American Eagles chart looks the same as the ammo sales chart since BO was elected again.  Hockey stick straight up!!!!

Buy now while we still can get the metal!

Mark Lonneker


Liberty Coin & Precious Metals


Hobbleknee's picture

US GDP is comprised of:


24% Fed

33% iPhone

43% Government

No soup for you!

rosethorn's picture

Crowding out, baby!!

hairball48's picture

Lies, lies and more damn lies. Bernanke should be hung  by his limp dick on a lightpole or something. God he's just an awful human being.

brettd's picture

Yeah, but there's nearly 700 elected "officials" up there too, and most all (save RP) are mute.  Cowards.

fonzannoon's picture

i have always thought the fed would one day have to unwind. since that is not the case...what is the result of the fed just holding all these assets until maturity?

fonzannoon's picture

a tight bond market works in his favor, no? everyone else fighting for scraps. what am i missing? if the fed refuses to sell...what happens?

Mr Lennon Hendrix's picture

It works in his favor.  It keeps demand high, which keeps prices high and rates low.

Mr Lennon Hendrix's picture

He is buying the bonds with paper printed out of thin air.  He will keep the bond market tight but he will do this at the cost of the currency.  This will have his desired affect of keeping stocks up too though.  The only way people will be able to tell that Bernanke is not relieving them of all of their burdens is when gas goes up (because no one cares about gold because nobody owns gold).  He will not be able to keep gas low forever.

He can keep gas down for a short time because he can short it, but the dollar will start falling eventually as the dollar supply increases.  Add the eventual fall in world oil production and the the dollar is screwed from both the supply and demand side, but like I wrote, Bernanke has a little time before that happens.

Oil production is set to fall in 2015 at the latest.  The supply-side pressure on the dollar will mean it will gradually weaken until then.  The wildcard is if a major war breaks out before then.  SOmething like Israel vs. Iran or if China/Russia step in for Syria.  Then the financial system will be on the brink.

If that happens Bernanke is likely to cut the value of the dollar to keep pensions and annuities up because we will need GDP to stay positive in nominal terms.  This is a smoke screen though as in real terms growth turned negative a decade ago.

fonzannoon's picture

I appreciate the in depth response. i am not sure why the US would be itching for war in that case, unless it's all about a scapegoat. which i'm sure it is.

Mr Lennon Hendrix's picture

The financial system is going to collapse.  They may just let it.  This would be the case if they would like to go back to a gold standard.

If they don't they will panic the markets with a war.

TruthInSunshine's picture

They'll cross that whole "unwinding" thing when they get to it, whether they have to unwind 24 trillion, 44 trillion, 220 trillion...

That's not sarcasm, but the reality.

Does anyone actually believe that a) they're competent enough to effectively plan ahead on such matters (doesn't history teach us anything?) and/or b) they give a shit about what will happen when the "then" arrives?

Anyone believing that they have a rational plan or that they care about such matters is not paying close enough attention to large details.

TheSilverJournal's picture

There is no unwind. Stopping or even slowing the growth in the balance shit will crash the system. The worldwide monetary system is one giant fiat ponzi scheme. Ponzies only stay together if they are able to continually bring in new entrants into the scheme, and in this case, the entrants are newly created currency. There are only two outcomes: implosion of the fiat ponzi now, or an even grander implosion of the fiat ponzi later.

Spastica Rex's picture

They - our dear leaders - mostly care about their own place in the mythological constructs of our 21st Century world. We feel trapped. They feel like demigods. Isn't there a new constellation called Bernanke?

brettd's picture

You start wars to distract your people from their day to day economic conditions.

There's a reason they're called "Theaters of War."

andrewp111's picture

Since Obama will never run again, he is free to let the system collapse. Then he can blame the Republicans and socialize everything under 1 party rule.

francis_sawyer's picture

since when was there ever a '2 party' rule?

samcontrol's picture

" add the eventual fall in world oil production"

wtf you talking about ?

Unprepared's picture

The whole capital markets would become a giant overnight repo market?

ekm's picture

That would mean that the US Treasury would pay the principal of the bond to the Fed.

Question: How's the Treasury going to find the money to pay the Fed? Answer: By having the Fed to buy new treasuries to pay the Fed. So the Fed creates money with the sole purpose of paying itself. Which means that the congress will simply close the Fed down. It's the death of the Fed.


It becomes a closed circle and the economy starves for money or nobody wants the money. When nobody wants the money they call it "reserves".

ekm's picture

The very existence of excessive reserves would mean that those US dollars are currently being rejected by the market.

The market finds no use for them.

Demologos's picture

And the kick-off for hyperinflation, bit-chez.