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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surf0766's picture

Who wins when the U.S. liberates Syria for the Brotherhood..

jomama's picture

and here i had always thought you'd eaten the red pill.

Joebloinvestor's picture

It's a wonderful life when you are the worlds reserve currency.


alfred b.'s picture


    Yess, I agree fully; but the smallest of caviat would be that  'it's a wonderful life WHILE you are the world's reserve currency.    Nothing is forever...loll

Joebloinvestor's picture

They don't care about the future and never did.

PLove's picture

Mongols At The Gate

JuicedGamma's picture

I have been trying to understand what QE means for about 3 years now and still don't fully understand.  And if you think you do you're probably wrong; Bernanke has gone native.

It's sort of like a dog eating it's own tail.  The question is how much can the dog swallow before it either chokes, dissappears or explodes.  The Japanese have managed to disappear.

The US, on the other hand, is too big to dissappear and most likely explodes.

How will we know the end game is afoot.  Look for interest rates to rise, maybe gold goes completely parabolic.  We still don't know what lights the fuse, but when it goes this one will be fantastic, and not the good fantastic.


Dr.Engineer's picture

The neo-fascist criminals are working to plan.  They are just too stupid to figure out all the black swans that are migrating and circling for a landing.  There are just too many of them and one will land.  You and I may see it land but the neo-fascists won't because it isn't in their models!  If it was in their models they would have seen it.

It might be Japan takes a pounding on any of several fronts.  It might be that Switerzerland just went negative interest.  It might be Brazil has a hard landing. 

So, the end game is afoot.  You are looking for which fuse is going to light first.  I recommend you prepare for the end because this is the end game.

The government is not the solution.

FreeNewEnergy's picture

Dr.Engineer, thanks for mentioning "black swan." I've been thinking about this since seeing a few news stories (one by CNBC's Jane Wells, an awesome MILF if ever there was one) about the strike at the ports of LA/Long Beach.

Some ships are sitting in dock, most are just sitting out in the ocean, waiting to go to another port - if possible - or wait out the strike.

Obama was asked to intervene. He's said and done NOTHING, according to plan. In 2002, feckless leader, George W., invoked a provision of Taft-Hartley to effectively re-open the ports throughout the West Coast.

So, Black Swan? Which by definition is "unexpected." Did anyone expect a walkout by roughly 800 clerical workers to trigger a wider work stoppage and shut down the ports? I'd say probably not.

The economic impact of this strike, if it continues for more than a few weeks - and today is now day eight - could make the insanity of the fiscal cliff look like chickensh-t, because this is real money, real goods not being delivered, disrupting the supply chain, and, ya know, winter is coming, a slowdown is coming regardless. This strike could easily tip the US into recession (if we're not there already).

You want a black swan? As mob people might say, "I got yer black swan right here."

Supply shortages. It's what's (not) for dinner.

blindman's picture

Greenspan Admits Philisophical Error in "The Warning"
" i found a flaw but i have been very distressed
by that fact .. .a flaw in the model that i perceived is
the critical functioning structure that defines
how the world works, so to speak.." alan greenspan
ben will have the same realization and find the same flaw. it is pathetic and criminal that a 5 minute
conversation with nearly anyone on the street would
reveal the flaw if these people would just come out
of their offices and ivory towers and listen, look
around a little bit, climb a dumpster or two and
see what is in there. take a look in the basement
if you don't want to leave the building.

besnook's picture

greenspan was not wrong. he simply has to flesh out his idea of self interest a little further. he thought rational self interest was the controlling factor in preventing the banks from self immolation. self interest leads to self destruction if self interest is allowed to be taken to the extreme. that is the essential problem with the current course. self interest in saving the banks is destroying the basic fabric of the economy which will destroy the banks anyway.

blindman's picture

that is interesting and insightful.

dognamedabu's picture

Self interest works the best when you don't have others self interest enforced on everyone else. Give people the power to overrule your self interest and they will, in their own self interest. If they had no power, which Anarchy proposes then your self interest and their self interest would be more equal. Give one group a gun (government) and of course the one with the gun will win. Solution? More government? More rules? Of course not. More guns.

besnook's picture

in the end the omnipotent power(unchallenged selfinterest) of .gov results in it's own destruction by the powerless. freedom is just another word for nothing left to lose.

q99x2's picture

You mean Bernanke lied? He lied. He actually lied. What a scumbag.

knukles's picture

No.  He merely misspoke himself.  Got carried away with a tad too much literal translation and colorful language.  Often the deeper politically correct terms might be somewhat rarefied and as such cause problems for the lesser educated.  But Lied?
No, Ben would not Lie

Matters of omission and commission perhaps, but not lying.

surf0766's picture

Again what is the tipping point?

When does the stampede start?  

Mr Lennon Hendrix's picture

The Fiscal Cliff charade is nothing but a smokescreen to keep everyone's eyes off the bigger issues such as 'How long will printing dollars to buy bonds work?" and "How far can the world go into debt before people realize that no one will pay it back?".

andrewp111's picture

It has been working in Japan for over 20 years. It works until it doesn't.

Everybodys All American's picture

Personally, I think the stampede could happen any day now that the Fed is openly monetizing beginning in January.

earleflorida's picture

'wary of repeating a battle like the one between jackson and biddle, [2nd bank of the u.s.] fed reserve founders designed a decentralized c.b. to prevent the concentration of power. they were concerned that the new central bank [fed. reserve act 1913] would be run by, and for, wall st.. thus the system was decentralized into twelve district banks [redeeming money in gold].

today the fed is best known for monetary policy, but that wasn't an original role of the institutions [humphrey-hawkins act 10-27-78__ dual mandate]. ny fed. pres. ben strong began conducting open-market-operations in the 20's , and many today blame the fuck'd-up monetary policy for the severity, and length of the great-depression [the one were in now?]. fdr took the nation off the gold standard in 1933 [executive order 6102] and supposedly that is when the monetary policy really coalesced, or sadly matured [manured]! the nation was now explicitly using the fiat money for the first time [camel nose/ mission creep]! in 1935, congress created the fomc to be the fed's arm.

the federal gov't. took more control over the fed. reserve during the great depression, and wwii, but since 1951,  and the treasury dept. resolution of a 'fabricated, bullshit kabuki theatre' [banks didn't want but wall st. loved or vice-versa? you decide?]... the cb has operated largely independent to the political process.

next comes the nixon shock [1971 and defaults on bretton woods-- nice!] that now explicitly places the u.s on a fiat system backed by nothing...

and here we are today monetizing our own debt by the frb and not a fucking question has been raised by congress! and to pour salt on the wound... the ny fed controls 90%+ of the cb decisions!!!'

quotes and add-on [sic] from minneapolis fed papers/ history... and mauh  

thankyou tyler 

Pumpkin's picture

I think the fed should buy all the debt.  And then we could just blow the MFr up.

IamtheREALmario's picture

Lol ... one assumes that the plan is NOT for the US corporation to default on their debt to the Fed (exclusively) at the appropriate time.... and so what? The Fed writes off a debt that they created out of thin air, anyway? At that point, there is no net effect.

earleflorida's picture

look at it this way... its has always started over an unaffordable conflict /war.  the civil war... not a great example, but the time slot is relevant for a unbiased empirical example-- the terrible recession of 1873-- the worse depression in u.s. history, the year of 1893, and, then the 1907 severe recession. what follows is wwi [1914/18 & FRB Act 1913... coincidence?] .

currently we had the dot-com bubble of 2000 and the housing collapse of 2007 and that's only 8 years apart. but, as i see it, the next big bubble will be monetization by the fed-- bank runs, defaults.

the parallels are simple-- deviate from true fiduciary prudence of a sound currency backed by hard assets, whether in times of war, or financially distressed geopolitical turmoil you get depressions via recessions.

we've had operation desert-storm, iraq #41-- operation shock and awe #43 [iraq & afghanistan]... and the continuation of bush's policies by obama [afgahistan, syria, libya]! wtf! 


Mr. Magniloquent's picture

Considering the charter of the Federal Reserve is set to expire in slightly over one year, perhaps this balance sheet expansion is deliberate for ulterior reasons? Should the charter not be renewed, a vast amount of debt would vanish, and all of the "assets" owned by the Federal Reserve would likely be liquidated at a miniscule fraction of their cost. At that point, a "new" institution could be created after several months of the subsequent depression, coming to the rescue of a United States without the benevolence of a central bank.

It works on several levels. Permits wild defecit spending in the short term and absolves all debt accrued by it, moves tangible assets to connected elites, provides an acceptable frame for the inevitable depression, along with re-establishing the absolute and vital role of a central bank. Furthermore, any new institution created would likely be granted a far more broad charter, codifying powers beyond what it has usurped within the last century.

Boxed Merlot's picture

It works on several levels...



So tell me, do y'all really have a full hospital under those meeting rooms in Basel?

Dr. Engali's picture

The federal reserve charter is not set to expire in 2013. That is only a myth. In 1927 The original Charter was amended To read "To have succession after February 25, 1927, until dissolved by Act of Congress or until forfeiture of franchise for violation of law." This means the 20 years never ran out it should have ran out in 1933, this is due to the fact that the first two Federal banks of the United states ran out due to charters not being renewed. This was the only way to combat it.

Catullus's picture

If the banks run out of treasury bonds, then what will they hold on to as Tier 1 capital? Cash? That's seems pretty inefficient.

knukles's picture

Foreskins of newly born undrerpriviliged, mentally ill, physically deformed, lame, blind and otherwise unsightly children.

We'll call it the T4 project.

andrewp111's picture

With interest rates of zero, Treasury Bonds ARE cash. There is no difference besides the duration, and the Fed has no choice but to keep rates at zero forever.

azengrcat's picture


uno's picture

I'm amazed they just don't keep up the Caribbean and UK charade

LawsofPhysics's picture

So, he lied to congress. So what? There isn't any rule law. Got physical?

Everybodys All American's picture

This would set a precident. No longer could anyone be prosecuted for this wthout this example being used as a defense.

Boxed Merlot's picture

As the principal member of Corzine's retainer in Chief's law firm famously contended before the American public, what is the definition of "is"?

buzzsaw99's picture

the boj holds about 1/3 worth of japan gdp on their books but i am betting that the bernank (and whichever joo banker follows him as chairsatan) can outstrip that portion of usa (bullshit jacked up number) gdp before owebama's second term is up.

Monedas's picture

Remember when they used to say .... National Debt .... we just owe it to ourselves ?

Everybodys All American's picture

-->Lying before Congress is no big deal.

-->Lying before Congress is a big deal and Bernanke will be taken to task.


besnook's picture

lying to congress is a big deal if you are roger clemmens. bankers and other members of the ruling class have a permanent get out of jail free card. the loophole is the card does not give them freedom from the guillotine.

blabam's picture

When things get serieus, abandon ship!

Paracelsus's picture

I am very upset that two issues are not being widely discussed in the media (any media).

A. Fukushima

B. The Icelandic solution to debt

I am also very uneasy that so many GS alumni are in VIP positions around the globe.

Oh,and F--- Bernanke with 2 Megavolt power line....                

literarybeer's picture

the media is there to control the sheeple, not to enlighten them in any way. sorry, but you should stop being upset.

Monedas's picture
  1.  ---> BATF Agent Trophy                                                                                                                                           2. ---> Federal Marshall Trophy  
dognamedabu's picture

No worries ZH. We here all know how well you are able to provide forward looking information. Look at it this way, if MSM did this as well as you do we'd all wouldn't feel so lucky to have this site. We'd have Good Morning America going - wake up America. You're fucked!! Now during a hyper inflation event we have a great dish we will show you how to prepare after these messages....

jomama's picture

did you just say forward looking?