• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Friday Tragicomedy: Former Fed Advisor Urges Fed To Buy More, "A Lot More" ... $30 Trillion More

Tyler Durden's picture




 

While we can only hope the following screed posted in an otherwise serious BusinessWeek, by David Kemper, CEO of Commerce Bankshare, and more importantly, a former president of the Federal Advisory Council of the Federal Reserve and thus indicative of the kind of "advice" the Fed receives, is a joke we have a very nagging feeling that the text below is actually serious. Which is why instead of Friday humor, we have decided to err on the side of caution and call this segment Friday tragicomedy. Because with a statement such as the following: "Why not expand the Fed balance sheet exponentially, from its current $3 trillion to $33 trillion... Would $30 trillion in extra buying power be inflationary when our entire current GDP is only about $15 trillion? Maybe, maybe not—but we need a game-changer here. First let’s celebrate the Fed’s record profits and its contribution to reducing our deficit. Then let’s seize the moment to do something truly grand: eliminate that stubborn deficit. We have the tools, and I, for one, say let’s give it a try."... it shows that the idiotic trillion dollar coin, Sheila Bair's farcical suggestion to let every American borrow $10 million from the Fed at zero rates, or even our suggestion from a year ago that the government build a Death Star, may appear as sheer genius in comparison to what else the Fed may be considering, and implement, before all this is said and done.

From BusinessWeek

QE Cubed: A Modest Proposal for More Fed Buying. A Lot More

by David Kemper, Chairman, President and Chief Executive Officer of Commerce Bancshares, Inc., and Past President of the Federal Advisory Council of the Federal Reserve

The ongoing depressing news about the American fiscal situation has obscured the startling and very impressive earnings performance recently announced by the Federal Reserve. The Fed, in its usual understated way, just revealed it will be turning over $90 billion in 2012 profits to the U.S. Treasury, a much-needed contribution that will put a sizable dent in our nation’s current $1 trillion federal deficit.

The Fed’s earnings performance over the last several years has been exceptional. It earned more than twice Apple’s after-tax earnings last year, the result of a simple but powerful strategy: borrow money at very low rates, then buy long-term bonds.

Now, some people might question the Fed’s exceptional results and point out that it has an unfair advantage in that it has a monopoly on manufacturing the U.S. dollar. Yes, the Fed does have extraordinary profit margins, since its cost of goods sold is close to zero (basically paper, some bond traders, and access to the Internet), and yes, so far the demand for new dollars seems unlimited. Meanwhile, we as a society seem to have no stomach for trying to reduce our soaring deficit and our accelerating entitlement programs. No one in our federal government seems to be willing to work out a long-term fiscal solution. Why not go with a business model that has proven to be such a winner?

That is why I propose the Federal Open Market Committee’s next move be to take our central bank to a whole new level—a 2013 campaign that I call QE Cubed. Why not expand the Fed balance sheet exponentially, from its current $3 trillion to $33 trillion? Earning an extra 3 percent on another $30 trillion in bonds would allow the Fed to return an additional $900 billion to the Treasury—thus wiping out most of our federal deficit while avoiding actually having to do anything about current government spending.

I’m sure some skeptics will scoff that this might be a little irresponsible. They make invoke memories of Weimar Germany. And, oh, by the way, where is the Fed going to find $30 trillion in acceptable bonds? I am the first to admit that the Fed will have to buy all $15 trillion or so of our current U.S. debt, as well as most of our agency and some corporate debt, in order to reach an additional $30 trillion. But we can make this happen! Here’s the plan:

The Fed will buy all outstanding Treasury debt held by our major creditors–including the Chinese, the Japanese, the Saudis, Bill Gross, and everybody else. This is not a bad thing; it is a major opportunity consistent with current monetary policy. Let’s cut through the economic mumbo-jumbo and put it in human terms: Would you, the American taxpayer, rather owe money to your benevolent rich uncle (the Fed) who is trying to get you a job, or to your no-good brother-in-law (you know who) who is out to steal your business and all your intellectual property? Not a difficult decision. Our current creditors, flush with cash from a $30 trillion infusion, would have to buy something else, further driving up asset prices and lowering interest rates.

Would $30 trillion in extra buying power be inflationary when our entire current GDP is only about $15 trillion? Maybe, maybe not—but we need a game-changer here. First let’s celebrate the Fed’s record profits and its contribution to reducing our deficit. Then let’s seize the moment to do something truly grand: eliminate that stubborn deficit. We have the tools, and I, for one, say let’s give it a try.

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Fri, 02/01/2013 - 15:33 | 3207068 NoWayJose
NoWayJose's picture

We WILL be borrowing 10 million dollars before all is said and done - just to buy a loaf of bread.  The inflation genie does not like to go back into the bottle.

Fri, 02/01/2013 - 15:48 | 3207156 GolfHatesMe
GolfHatesMe's picture

why not $319 Trillion, Everyone gets their own Trillion

Fri, 02/01/2013 - 15:50 | 3207164 Say What Again
Say What Again's picture

Should I be nervous?
The VIX might break through 13 to the upside.

Hey Bernank,
Your team is getting lazy!!!

Fri, 02/01/2013 - 15:51 | 3207171 knukles
knukles's picture

Come on now, let's not be too harsh.  Not every leader adviser or others in positions of grave import and influence can be sane now, can they?

Fri, 02/01/2013 - 15:53 | 3207188 Say What Again
Say What Again's picture

You're right -- I was expecting too much.

However, I thought I saw his photo on 4chan

Fri, 02/01/2013 - 16:10 | 3207262 MisterMousePotato
MisterMousePotato's picture

We live in such a strange, upside down world that I honestly cannot tell if this is deadpan humor or really intended seriously. Has to be intended as humor, I mean, "Why not go with a business model that has proven to be such a winner?" Seriously?

Fri, 02/01/2013 - 16:21 | 3207306 Thomas
Thomas's picture

He was clearly being facetious. Nobody would recommend growing the balance sheet by 6 Krugmans.

Fri, 02/01/2013 - 17:09 | 3207491 Say What Again
Say What Again's picture

I just bought one of those high end printers.

Where do I get some of that cool paper with all the threads and watermarks?

Fri, 02/01/2013 - 17:34 | 3207529 Manthong
Manthong's picture

The sad thing is that his facetious and acerbic prescription is lost on most people.

Fri, 02/01/2013 - 17:43 | 3207588 Calmyourself
Calmyourself's picture

It is not sad it should be very frightening to see guys like this using black humor to attack the ptb.  The confidence end game may be closer than I have thought.  One thing is sure this guys basement is full of ensure, guns and gold and he best stay out of hottubs.

Fri, 02/01/2013 - 20:47 | 3207885 SafelyGraze
SafelyGraze's picture

A lot of us on the fomc have been thinking about how to make best use of what we informally refer to as a 'restorative move', whether it be on the scale of 30T or 300T in money supply.

in the past, our thinking was limited by a narrow interpretation of our legislatively mandated authority, namely, that we would only be able, as part of such a move, to lend money which would later be sopped up as the loans were repaid.

but with the advent of outright purchases of MBS, we are finding our way into the greener pastures of economic stabilization without the shadow of debt repayment and its concomitant monetary contraction.

our main obstacle has been the lack of financialization opportunities at a large enough scale to qualify, from our perspective, as a genuinely restorative move in our outright-purchase policy going forward.

but together with our partners in the treasury and among the primary dealers, we have successfully established structured securitization of the federal government.

beginning this year, we anticipate purchasing Freedom Facility Equity Vehicles at the pace of $1T permonth. These instruments are tranches of a securitized pool formed by the assets and governance of the US. The market value is, in essence, the total worth of the entire nation, which allows us a mechanism for injecting liquidity into the market on a scale that can make a genuine difference.

 

Sat, 02/02/2013 - 08:24 | 3208859 ATM
ATM's picture

Bravo. Only needs quotation marks but it will get them soon enough.

Sat, 02/02/2013 - 11:50 | 3209007 SWRichmond
SWRichmond's picture

Hjalmar Schacht / MEFO bills, bitches. All we need is more leverage, and in total secrecy, on pain of death.

Read Schacht's testimony before the Nuremberg Tribunals.

http://www.nizkor.org/hweb/imt/tgmwc/tgmwc-12/tgmwc-12-118-03.shtml

et al

"It goes without saying that in normal times and under normal economic conditions such means as Mefo Bills would not have been resorted to. But if there is an emergency, then it has always been customary, and it has always been a policy recommended by all experts, that the issuing bank should furnish cheap money and credits so that the economic system can, in turn continue to function.

Mefo Bills, of course, were a thoroughly risky operation, but they were absolutely not risky if they were connected with a reasonable financial procedure, and to prove this I would say that if Herr Hitler, after 1937, had used the accruing funds to pay back the Mefo Bills, as had been intended - the money was there - then this system would have come to its end just as smoothly as I had put it in operation. But Herr Hitler preferred simply to refuse to pay the bills back, and instead to invest the money in further armament. I could not foresee that someone would break his word in such a matter too, a purely business matter."

Sat, 02/02/2013 - 00:00 | 3208515 Al Gorerhythm
Al Gorerhythm's picture

I thought I was reading MDB.

Fri, 02/01/2013 - 21:38 | 3208120 Tango in the Blight
Tango in the Blight's picture

Can you make gold with a 3D printer?

Fri, 02/01/2013 - 19:04 | 3207775 DavidC
DavidC's picture

Nice one Thomas!

DavidC

Fri, 02/01/2013 - 16:20 | 3207312 James_Cole
James_Cole's picture

This is a joke, it's even called "A modest proposal," it's actually pretty witty too!

"I’m sure some skeptics will scoff that this might be a little irresponsible. They make invoke memories of Weimar Germany. And, oh, by the way, where is the Fed going to find $30 trillion in acceptable bonds? I am the first to admit that the Fed will have to buy all $15 trillion or so of our current U.S. debt, as well as most of our agency and some corporate debt, in order to reach an additional $30 trillion. But we can make this happen! Here’s the plan:

The Fed will buy all outstanding Treasury debt held by our major creditors–including the Chinese, the Japanese, the Saudis, Bill Gross, and everybody else. This is not a bad thing; it is a major opportunity consistent with current monetary policy."

Obviously he's kidding.

Fri, 02/01/2013 - 16:35 | 3207356 smlbizman
smlbizman's picture

you should not write letters and smoke pot while taking acid...you may embarrass yourself

Fri, 02/01/2013 - 17:01 | 3207466 Almost Solvent
Almost Solvent's picture

Unless one is drunk

Fri, 02/01/2013 - 17:11 | 3207499 Jack Napier
Jack Napier's picture

Damn I miss college. Now where did I put those letters...

Fri, 02/01/2013 - 20:21 | 3207886 TheFourthStooge-ing
TheFourthStooge-ing's picture

Don't bogart that chloroform, bro.

Fri, 02/01/2013 - 15:56 | 3207182 Stackers
Stackers's picture

I'm not sure which "winning business model" he is referring to since two sentences before that he said the Fed has an unfair advantage with zero overhead cost beyond paying $9.99/mnth for DSL internet and "sells" a product with unlimited demand. I would hardly call that a "business model" .... more like slavery or fuedalism

 

It's like having a monoply to sell air, and being amazed at the amount of money you can make doing it and calling it a genius business model.

Fri, 02/01/2013 - 15:57 | 3207210 ShorTed
ShorTed's picture

Dear Commerce Bancshare shareholders.  SELL EVERYTHING NOW!  Your chairman is an idiot.

Fri, 02/01/2013 - 16:27 | 3207327 Payable on Death
Payable on Death's picture

Funny thing, Commerce regularly appears on Forbes' safest bank list. Same with UMB, which is run by KC's other Kempers.

Fri, 02/01/2013 - 16:46 | 3207414 caconhma
caconhma's picture

I am desperately trying to figure out whether the Fed and their masters are completely incompetent idiots or their goal is to ruin America economy leading to a civil war?

 

 

Fri, 02/01/2013 - 16:01 | 3207224 Mad Mohel
Mad Mohel's picture

Uh professor I think you may be short some zeroes there.

Fri, 02/01/2013 - 16:07 | 3207244 Bunga Bunga
Bunga Bunga's picture

Every citizen gets a free one trillion dollar coin, why not.

Sat, 02/02/2013 - 00:02 | 3208518 Al Gorerhythm
Al Gorerhythm's picture

Starving trillionaires.

Fri, 02/01/2013 - 16:59 | 3207461 Panafrican Funk...
Panafrican Funktron Robot's picture

I remember when Charles Evans went on CNBC a while back and said some crazy shit about unlimited QE with an employment target.  Crazy shit.

Fri, 02/01/2013 - 17:10 | 3207490 midtowng
midtowng's picture

I like the Death Star idea more.

Fri, 02/01/2013 - 20:09 | 3207868 Bansters-in-my-...
Bansters-in-my- feces's picture

"why not $319 Trillion,Everyone gets their own Trillion"

So

 I am going out on a limb here and guessing math is not your major.

Nor was it of the 16 people who agree with you.

Or you live in a country of 319 citizens...

Fri, 02/01/2013 - 15:48 | 3207166 mayhem_korner
mayhem_korner's picture

 

 

Did MDB just blow his cover...?

Fri, 02/01/2013 - 15:56 | 3207202 akak
akak's picture

MDB always blows.

Fri, 02/01/2013 - 16:13 | 3207264 Lohn Jocke
Lohn Jocke's picture

That or he blew his load reading this.

Fri, 02/01/2013 - 16:15 | 3207275 azzhatter
azzhatter's picture

I stopped at the local JPM branch this morning and asked to fill out an application for that $10 million loan for ZIRP. Oddly, they didn't seem to know anything about it.

Fri, 02/01/2013 - 16:28 | 3207332 James-Morrison
James-Morrison's picture

They didn't get the "FULL RETARD" memo, yet.  

Sounds to me like:  "This damn gas pedal doesn't let my Chevy exceed 110 MPH.  Let's duct tape a Jet Engine on this mother..."

Fri, 02/01/2013 - 16:47 | 3207418 LongSoupLine
LongSoupLine's picture

Holy fucking shit..what the fuck.

 

Does the stupidity have a fucking bottom?

Fri, 02/01/2013 - 17:09 | 3207493 sessinpo
sessinpo's picture

NoWayJose:"We WILL be borrowing 10 million dollars before all is said and done - just to buy a loaf of bread.  The inflation genie does not like to go back into the bottle."

 

I assume you mean 10 trillion, not million?

 

Anyway, to get to my point. Let's say, you NoWayJose, had the power to print money. Let's also assume you owed $1 trillion in liabilities. Maybe it is loans (bonds), maybe it payments to social programs such as SS or Medicare, or probably a combination of such.

 

You print $1 trillion dollars. Where does it go? It doesn't go into the economy. It goes to service old debts - the $1 trillion you owed (MONEY, OR RESOURCES ALREADY SPENT).

 

That is a very basic econ 101 that most ZH are missing.

------

Now take the current environment. Guess what? That $30 trillion is nothing. Yes, I said nothing. Just alone in the US, the obligations of the USA exceed $30 trillion by at least double. Now factor in nations around the world and $30 trillion is like trying to settle a $1 million dollar debt with $1000 dollars.

 

 That is why inflation is not raging as most think and predict it should. All the money printed and will be printed isn't enough because it isn't "circulating normally" through economies. It is servicing old debt - money already spent.

 

 

 

Fri, 02/01/2013 - 15:32 | 3207069 Say What Again
Say What Again's picture

Do they give these guys Pshyc Evaluations?

Fri, 02/01/2013 - 15:35 | 3207079 cossack55
cossack55's picture

No, just endless free samples of the full SSRI smorgasbord.

Fri, 02/01/2013 - 15:39 | 3207095 Say What Again
Say What Again's picture

This guy sounds like he takes Lithium, Prozaccc, Effexor, and moar with a double shot of Jack D.!!!

Fri, 02/01/2013 - 15:54 | 3207189 TerminalDebt
TerminalDebt's picture

The next step is usually to make inflation illegal.

The next step would be limiting bank withdraws to $500 a day, by this time a loaf of bread would cost $12,000.

In the age of electronic money the step after that will see accounts frozen because they use 64bit signed int to represent your balance, and 4.3Billion dollars would buy you 3 eggs.

 

 

Fri, 02/01/2013 - 16:07 | 3207246 Divided States ...
Divided States of America's picture

Hes right. From now on, Economics 101 should be renamed Fixing Paper Jams 101 in all higher education institutions all over the world.

Fri, 02/01/2013 - 16:15 | 3207282 Bunga Bunga
Bunga Bunga's picture

That's nothing, they square circles every day.

Fri, 02/01/2013 - 15:35 | 3207083 ThirdWorldDude
ThirdWorldDude's picture

This asylum is run by the inmates and the best-est and greatest among them end up with a Nobel prize...

Fri, 02/01/2013 - 15:48 | 3207157 brusty4
brusty4's picture

This was clearly tongue-in-cheek the way I read it. 

Fri, 02/01/2013 - 17:16 | 3207512 sessinpo
sessinpo's picture

brusty4: "This was clearly tongue-in-cheek the way I read it."

 

Regardless, the comment, the response is what is interesting. And I posted a logical explaination as to why I disagree. Tongue-cheek, sarcasm, joke, seriousness. It shows you the thinking of the poster and if one agrees or disagrees, that is what we are responding too. That is what you responded too.

Fri, 02/01/2013 - 15:51 | 3207172 EscapeKey
EscapeKey's picture

No need for evaluation.

What he's describing is full takeover of the United States by the central bank.

But obviously, being a lying and deceitful piece of shit, he has to polish the shit until it sounds good. And put glitter on it.

Fri, 02/01/2013 - 15:32 | 3207071 Cursive
Cursive's picture

Not sure if serious?  The title reads like a Swiftian parody.

Fri, 02/01/2013 - 15:40 | 3207116 insanelysane
insanelysane's picture

It is February 1st not April 1st.

Do NOT follow this link or you will be banned from the site!