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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Samsonov's picture

If it was getting dumped, yes, but it's being unwound slowly to ensure there is no blowout, which would defeat their purpose.

Mr Lennon Hendrix's picture

The Fed is selling short term USTs to PDs in an exchange for the cash from the MBS purchases.

ekm's picture

Fed has its own accounting methods = no accounting.

There's no such thing as a Fed balance sheet.

Unprepared's picture

I have to admit, two years ago, Iwouldn't have thought the Chinese had a way to unload their treasury holdings without triggering a war or booking a huge loss. Turns out I was not imaginative enough and the Bernank is presenting them with a golden opportunity, however marginal, to "pull"...

... or is it the other way around? Chinese were going ahead with their plan anyways and the Bernank had to pick the slack and all this monetization was not to save the banks but to save the Treasury. Fuck it, I'm lost.

Dr.Engineer's picture

The Chinese are not stupid.  They trusted the US banksters once.  They were wrong.  Now they want blood.  They are going to take it slowly.

They are operating according to plan.  The ChairSatan has no plan -- QE <n> is not a plan.

Boxed Merlot's picture

I was not imaginative enough and the Bernank is presenting them with a golden opportunity...


A golden opportunity in more ways than one.  With the Feinsteins in bed with China for decades and the Bernanke's phd disertation "Long-Term Commitments, Dynamic Optimization, and the Business Cycle" being reviewed and approved by his thesis adviser, the future governor of the Bank of Israel, Stanley Fischer, imagination isn't as difficult as one might think.

youngman's picture

I too think there was a deal cut...Keping treasuries high was one.....I also  think the $1720 price in gold was one of them.....

Let The Wurlitzer Play's picture

The FED wont have to worry about unwinding the portfolio.  In the near future the portfolio will be worthless.  I have some Zimbabwe bonds that I purchased for their yeild and safety, would anyone like to buy them from me?

All US federal debt with duration over 2 years will go to junk.  Do you want a guarantee of US dollars 5, 7, 10, 15 or even 30 years from now?  Only someone managing another persons money would take that bet.



escargot's picture

All things aside, you've got to admit that the Bernanke has a sweet beard.  In fact he's quite a bit more handsome than the Greenspan. 

imbrbing's picture

Yea, he sure has a purty mouth, more so than that smeagle looking guy

Ookspay's picture

True, if he tilts his head his mouth looks like a hairy pussy! Fuck 'em!

Monedas's picture

You are the snails in my vomit !  Do you have a crush on Anderson Cooper ?    Greenspan undid what Hemingway worked a life time to give us:   Plain Monedian English !

akak's picture

Monedas, really, for the last time, the punctuation marks go DIRECTLY after the last word, with NO space in between.

Just look at everyone else's posts for examples.

Monedas's picture

I'm reinventing the language .... the way it is has led us to confused Socialist thinking .... nothing to lose ?

Snidley Whipsnae's picture

I used to think punctuation was important... Then I read a few Cormac McCarthy novels. After the first few pages I was so absorbed in the stories that I forgot the punctuation.

Clashfan's picture

Punctuation affects credibility whether one wants it to or not.

Urban Redneck's picture

So do names;

so do job titles;

so do memberships;

and to a lesser extent college degrees.

Ideas are important, credibility is suspect, especially in Fight Club.

bunnyswanson's picture

It's amazing really how healthy and happy these men and women in Congress, banking, govt appear.  Sleep deprivation from the stress and pressure is not an issue with these people.

Things that go bump's picture

Please, he is hiding a weak chin.  

besnook's picture

here is the way out. based upon the premise that when you consider money already spent by you money you borrowed from yourself you actually don't owe anyone anything or, at least, never really have to pay it back. this is like operation twisted greenback. if the fed owns all the debt it has effectively borrowed money from itself which it can effectively put off payment of forever or simply forgive it all with very little effect on the real economy. it looks like the strategy chosen to buy time for .gov to get it's fiscal house in order not to mention create a more realistic illusion that the tbtf banks are actually solvent. it looks like it could actually work but i am not betting on it yet.

fonzannoon's picture

since the gov has absolutely no plans at all to get it's fiscal house in order how does that fatcor into your theory?

riphowardkatz's picture

there is still a lot more wealth to be redistributed

ekm's picture

What matters is the real economy. The congress has appointed the Fed to fix the economy (very wise in order for congress not to get blamed).

If money goes from Fed to Treasury to Fed to Treasury, the economy won't get any better. The congress will wait until it gets way worse and then.............blame the Fed. They want to be reelected.

fonzannoon's picture

That is interesting ekm. i always saw it the other way. i saw the fed sticking around while a stupid group of poloticians take the blame and get put out to pasture while a new group of assholes gets ushered in. same as it ever was. i have to think that one over.

besnook's picture

what is interesting is the last two fed chairman changes came just before a huge fiscal and monetary mess. volcker came in to fix the first mess and bernanke the most recent mess. if bernanke resigns i expect another huge mess to ensue.

andrewp111's picture

Yup. Greenspan's retirtement was the clue that the house bubble was about to implode. When Bernanke gets the hell out of dodge you know something is about to blow up.

besnook's picture

if the fed is buying all the debt then it clears the congress to grant every citizen 10,000 dollars to do with whatever they want....the bernanke helicopter in a literal way allowing the congresscritters to get reelected and the fed to raise interest rates effectively, at least nominally, allowing retirees to retire comfortably and the rest of us to create some wealth.

don't misunderstand me. i have not bought into my own bs. i came to this conclusion as the only reasonable explanation for what they are doing because i can't believe they are purposely destroying the dollar expecting some good to come of it.

XitSam's picture

It would let Congress give everyone some FRNs, yes, but the banks would then not get first use of the newly created FRNs.

Congress and the Fed are in a game to blame each other. I think Congress will lose in the battle of public opinion because they are not a unified voice. Note Bernanke's clear statements in the last 2 or 3 press conferences: "Monetary policy is not a panacea." I predict he will say it next time.

I am troubled at how many otherwise clearly thinking people, assume that all these powerful agencies (Fed, POTUS, Congress, IMF, etc) use logic or attribute they have good intentions for the country. Without even getting into conspiracy theories, these agencies' goals are not what we think they are, and their logic is sick, twisted and based on faulty premises.  /rant

ekm's picture

Not correct, I'd say.

If it goes to that point, it'd mean that people will riot to just find some bread to it. Fed people better hide in bunkers.

Congress would throw all the mud they can on them.


I don't remember who, but one or two Fed board members are openly saying that congress should take away the 'employment mandate'. They are sensing the fear.

XitSam's picture

Most people don't understand the Fed. You, me, ZH, even CNBC viewers, but we're the minority. If it got to the point of food riots, the rioters would be blaming the people that they think could do something immediately: pass a law to get them some food. They don't understand secondary effects or causes.  When hungry, watch them turn on Obama too. They have a ObamaPhone, how about some ObamaFood.

Clashfan's picture

It's a Luciferian cabal that wants nothing less than the destruction of America and a one world government with a global tax.

Ghordius's picture

way too complicated for me.

do you have a simpler version?

something that does not involve the "Pax Americana", of course, or what foreigners want /s

XitSam's picture

<- Blows up before Bernanke leaves the Fed

<- Blows up after Bernanke leaves the Fed

Unprepared's picture

<- The Bernanke blows up before the Blowup

FreeNewEnergy's picture

Bernanke Blow Up Doll.

Pump him and he shits hundred dollar bills.

Thanks for that horrible visual so early in the morning. Ughh!

Since it's my birthday, and I will probably be drunk by noon, consider this as one of the more cogent comments by me today.

Booze. It's what's for breakfast. LMAO.

XitSam's picture

I was just wondering exactly when Bernanke's term was up. According to this article I think it will be January 31, 2014. Which only gives 14 months to blow up. It also says something I didn't know ... "his 14-year term as a member of the board ends Jan. 31, 2020." 

And there's something else ... he took an oath. What oath did he take? An oath to promote the interests of a private banking cartel?

Monedas's picture

Don't bother me .... I'm watching the CNN Hero Awards with Anderson Cooper !  

Monedas's picture

You know why Obama only wants to raise taxes on the 1% .... because the upper middle class is mostly overpaid government bureaucrats !  Most of the 1% are bundlers for Obama .... and can afford it !

chinaboy's picture

If they can buy out the treasury market, may be they can buy out the fiscal cliff. Can someone please explain why they cannot?

Cdad's picture

Sure.  It's called West Texas crude.

CrazyCooter's picture

Commodity specs will get Corzined if they get too excited. Food and fuel have to stay cheap to keep the ponzi alive ...

The end will come, no arguement about that, but only when things fall apart and not because of spec money. Don't belive me? Try a custodian account at MF Global. Or, who ever the next MF Global is ... or the next ... until folks get the drift.



Mr Lennon Hendrix's picture

They are trying. 

The "Fiscal Cliff" will be known as "The Grand Bargain" in History.  After the WS bought Congress and WH come to terms on how to best fleece Americans they will raise the debt ceiling.  The Grand Bargain will go on for months, but as soon as it is wrapped up the debt ceiling will be raised in a matter of days.

venturen's picture

Time to take the keys to the printing press away. 

Monedas's picture

Coming to a theater of war near you soon .... SYRIA ! 

Mr Lennon Hendrix's picture

Libtard media is really pushing this as the next war.  It is unbelievable that these fucking libtards can push war when they are in house but go against it when the GOP is in office.

Libtards are the manic psychopaths of politics while the Republinuts are just batshit crazy.

I will take batshit crazy any day.  At least you know what you are up against.

Monedas's picture

I'm just "Biden" my time .... until the world implodes ! I'm sure glad I spread some of my stashes around !  I'm like a spawning salmon .... if 90% percent of my "seed" is lost .... I'll still have enough to live a quiet, anonymous existence !  If half my seed survives .... I can engage in a little bureaucrat trophy hunting ?  Sarc: OFF/off