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The Annotated Hilsenrath

Tyler Durden's picture


In a weekend dominated by discussion of the "Taper Tantrum", i.e., interpretations of what Hilsenrath "said" after the close on Friday, what the Fed wanted him to say, what the market's response to what he said or did not say would be, and what the next steps may be, we present this convenient annotation of Hilsenrath's complete recital courtesy of Mike O'Rourke from Jones Trading.

Hilsenrath Highlights

The WSJ’s Jon Hilsenrath published a story Friday evening titled “Fed Maps Exit From Stimulus - Timing of Wind-Down Is Uncertain, but Focus Is on Managing Unpredictable Market Expectations.”  We suspect the twitter taper caper on Thursday opened the window for the FOMC to provide some clarity as to where policy stands.  Here are some key questions.  Is this story important?  Can it be taken at face value and should markets move?  The answer is yes, yes and yes.  The WSJ placed the article prominently on the cover of the Saturday edition, so they believe they have an important story.  It is a Hilsenrath story, and in the post-recession QE era the Fed has used him to foreshadow almost every major monetary policy move.  Finally, in a tape where QE is the dominant theme, any indication of policy slowing or reversing course is meaningful.

We think the headline in and of itself is interesting “… Focus Is on Managing Unpredictable Market Expectations.” Are market expectations really highly unpredictable?  Has this Fed done anything done but promise excessive monetary support for the US economy?  The market only expects what the Federal Reserve has conditioned it to expect.  Nearly every time the stock market dipped over the past 3 years, a new asset purchase program was launched.  We view “unpredictable market expectations” as a sign that the FOMC has been trying to foreshadow policy in one direction and the market is interpreting it in another direction.

Since this story is important, we decided to share our thoughts that came to mind as we read through it and have quoted the text of the original article below.  You can skip to our key takeaways in parentheses and blue text at the end of the paragraphs. 

* * *

 “Federal Reserve officials have mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy—an effort to preserve flexibility and manage highly unpredictable market expectations.”  

(The Fed has done little to dissuade the market from believing it can or will meaningfully reverse course on monetary policy.  Despite the Fed Chairman’s championship of transparency at the Central Bank, he chooses to foreshadow hawkish policy through the WSJ or the FOMC minutes rather than having to make a speech and own the statements himself.  This is his way of keeping his flexibility.  Our question is this - if your formal speeches and statements primarily advocate easier monetary policy and all indications in the other direction come from surrogates, are the market expectations really that unpredictable?)

“Officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated.” 

(“Halting steps”- that is an interesting description.  On one level it sounds abrupt, but it more likely means there could be pauses between moves.)

“The Fed's strategy for how and when to wind down the program is of intense interest in financial markets. While the strategy being debated leaves the Fed plenty of flexibility, it might not be the clear and steady path markets expect based on past experience.” 

(This gives the indication that investors will prepare for the FOMC meeting by trying to anticipate if the FOMC will trim $10 or $20 Billion this meeting.  Similar to a decade ago when the looming question was whether the FOMC would move 25 or 50 basis points or make no move at all.)

“Officials are focusing on clarifying the strategy so markets don't overreact about their next moves. For example, officials want to avoid creating expectations that their retreat will be a steady, uniform process like their approach from 2003 to 2006, when they raised short-term interest rates in a series of quarter-percentage-point increments over 17 straight policy meetings.” 

(Finally, some type of acknowledgement of what a disaster that policy was.  This new approach should lead to lead to mildly more volatility.  This is a healthy development.  The added uncertainty should help keep the market honest by reducing some low conviction speculative activity.)

"I don't want to go from wild turkey to cold turkey," Richard Fisher, President of the Federal Reserve Bank of Dallas, said in an interview Friday.  "I think we ought to dial it back." Mr. Fisher is part of a contingent of Fed hawks who are wary of the Central Bank's easy-money policies.

(Despite being one of the Fed Presidents with a logical constructive view, if Ben Bernanke does not listen to Fisher then why should we.)

“Stocks and bond markets have taken off since the Fed announced in September that it would ramp up the bond-buying program, and major indexes closed at another record Friday. An abrupt or surprising end to it could send stocks and bonds in the other direction, but a delayed end could allow markets to overheat. And some officials feel they've ended other programs too soon and don't want to repeat the mistake.” 

(In 2010, St. Louis Fed President Bullard practically begged Bernanke to keep QE1 open as a dormant but ongoing policy allowing for additional purchases if the economy weakened and sales if it strengthened – similar to the manner in which the Fed funds rate policy is administered.   Bernanke chose to let QE1 sunset.  Then 2 ½ years later the Chairman adopted Bullard’s approach.  These days President Bullard is leaning to the hawkish side.)

“The Fed's strategy on how to unwind the program has emerged as a source of some uncertainty in markets in the wake of its policy meeting earlier this month. The Fed said in its post meeting statement that it was ‘prepared to increase or reduce the pace of its purchases’ as the economic outlook evolved.” 

(This balanced language in the FOMC statement was met with new stock market highs.  We noted that considering the soft round of economic data, the word “reduce” was a surprising hawkish twist to us.  It is very possible and now it is looking likely that it was meant to be hawkish.  A hawkish jawbone met with more speculative activity could be an example of the “highly unpredictable market expectations.”)

“The suggestion that the Fed might boost its bond buying was a change in the policy statement that appeared to some as an acknowledgment that more aid for the economy might be needed.  Employment data in April was weak and inflation has fallen well below the Fed's 2% inflation objective, both points that allow leeway for more stimulus.” 

(The Congressional authority for the dual mandate reads as follows "effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”  Up until last year, the unofficial inflation target of 2% annual PCE growth was used to make sure inflation stayed in check.  We understand the deflationary risks in the economy, but this thinking that if inflation is below 2% the FOMC needs to do more is dangerous, and essentially contrived.  This is not an exercise of the authority given to them by Congress.  Unless the FOMC is prepared to tighten at 3% (we were approaching it in 2011), it should not be pushing for additional easing at 1% as Chicago Fed President Evans does daily.)

“But many officials believe the recovery is on track and aren't yet concerned about the inflation slowdown.  Instead, the most recent statement seems more aimed at signaling the Fed's broader flexibility in managing the programs.”

Charles Plosser, president of the Philadelphia Fed, said in an interview Friday that the change in the statement was meant "to remind everybody" that the Fed has "a dial that can move either way."

(Just like President Fisher, President Plosser has constructive views, but for anyone with hawkish views their credibility among market participants has been undermined by the Bernanke, Yellen & Dudley block.)

“The dial can also pause. Fed officials could shrink the size of their purchases and hold it at that level for a while as they assess the effects, or they could make several moves in a row if that seemed right. They could also boost their buying if they lose confidence about the economic outlook. The strategy is meant in part to ensure flexibility in an uncertain economy.”

(The market will only believe the dial can move in the other direction when it actually happens.)

“Yet while officials appear increasingly settled on a strategy for how to dial back the program, they haven't decided when to start.” 

(In 2009-2010, Chairman Bernanke gave speeches on the “exit strategy.”  Since then, he has alluded that it might not go according to the original plan.  So it’s no surprise that the lack of further details on timing falls deaf on market ears.)

“Mr. Fisher said he advocated starting right away at the last Fed meeting.  Some officials can envision taking a first step this summer, if strong data shows the economy is weathering the tax increases and federal spending cuts that appear to be weighing on growth. But they might wait longer, especially if the economy disappoints, as it has for several years during the spring and summer months.”

(Yes, the seasonal adjustments.  Three years into recovery the Fed has finally figured it out. )

“A Wall Street Journal survey of private economists this week showed that 55% expect the Fed to start shrinking its bond purchases in the third or fourth quarter this year, while 45% expect the Fed to wait until next year or later.  None expected the Fed to increase its purchases as its next step.” 

(After this article, 100% should expect tapering to start this year, but they won’t.)

“The bond-buying programs are aimed at pushing down long-term interest rates and boosting financial markets to encourage more borrowing, spending and hiring in the broader economy. The Fed's securities holdings have increased from $2.58 Trillion to $3.04 Trillion since September.”

(That’s just change in Chairman Bernanke’s couch cushions).

“Clearer signals about the Fed's plans could emerge next week.  Five regional Fed bank presidents, including Mr. Fisher and Mr. Plosser, and Fed governor Sarah Bloom Raskin are scheduled to speak.  Fed Chairman Ben Bernanke will discuss economic prospects for the long-run in a commencement address at Bard College at Simon's Rock next Saturday.” 

(Chairman Bernanke just spoke by way of this article.  If anyone outside of Bernanke, Yellin or Dudley speaks, nobody will listen.  NY Fed President Dudley has a speech May 21st.  More importantly, Chairman Bernanke testifies on the economic outlook in front of the Joint Economic Committee on May 22nd. )

"Central bank officials want to see substantial improvements in the job-market outlook before the programs are ended all together. And then, efforts to boost short-term interest rates might not occur for months or even years later.”

(The “considerable period of time” mentioned at the last press conference.)

“The unemployment rate has fallen to 7.5% from 8.1% since August, both because of hiring and people leaving the workforce. Payroll employment has increased on average by 193,000 per month during the eight months since the program was launched, compared with average gains of 157,000 before it began. "It is pretty hard to say we haven't seen an improvement in the labor market," Mr. Plosser said. 

(The average Unemployment Rate for the last 20 years is 6%, the last 40 years is 6.5%.  No matter how much of a rush you are in to get somewhere, you still don’t drive 80 miles per hour in the driveway.)

“Many economists believe economic growth will slow in the second quarter—in part because of fiscal drags—from a 2.5% annualized rate in the first quarter, but then accelerate in the second half. If growth remains firm in the weeks ahead that could give officials more confidence about starting to pull back.

Fed officials aren't very concerned about the annual rate of inflation falling toward 1% in recent months, well below their 2% objective.  Because expectations of future inflation have remained steady, many Fed officials expect inflation readings to move back up toward 2% in the second half of the year. ‘I'm not too worried about it,’ Mr. Plosser said. ‘Expectations remain pretty stable.’"

(This was addressed above, Plosser is right.  We have to reiterate the FOMC manufactured a new target and it has become the justification/rationalization for policy beyond its mandate.)

“The Fed has policy meetings in June, July and September, and Mr. Bernanke will have a chance to explain its actions at news conferences in June and September.” 

(June makes a lot of sense to get the process rolling and start managing those unpredictable market expectations.)

“Some of the bond-buying program's most vocal proponents have signaled more optimism about the outlook and a willingness to consider pulling back from the programs. John Williams, president of the Federal Reserve Bank of San Francisco, said in an interview last month that he anticipated pulling back this summer.”

"I'm looking for continuing signs of improvement in the economy," he said, "sustained, ongoing improvement in the economy."

(Aren’t we all?)


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Sun, 05/12/2013 - 21:13 | 3554752 devo
devo's picture

Gold starting to take a dump.

Really curious to see what happens in physical markets this time.

Sun, 05/12/2013 - 21:16 | 3554760 Zer0head
Zer0head's picture
Bloomberg’s culture is all about omniscience, down to the last keystroke

Sun, 05/12/2013 - 21:23 | 3554782 fourchan
fourchan's picture

you had me till "lead to".

Sun, 05/12/2013 - 21:38 | 3554824 Careless Whisper
Careless Whisper's picture


The Careless Whisper UNANSWERED QUESTION OF THE WEEK & Threadjacking

Its been reported here and elsewhere that allegedly, the Bloomberg News Cartel did some hacking and wiretapping against the JP Morgan Cartel, the GoldmanSachs Cartel, and the Federal Reserve Cartel.While there have been many questions about what information the reporters for the Bloomberg Cartel were able to obtain, my question is, what information did the Bloomberg Cartel owner obtain, and when did he start obtaining the information. I'm not accusing the Bloomberg Cartel of frontrunning the other Cartels. But, i am really really curious how the Bloomberg Cartel owner was able to amass a fortune estimated at $30 Billion, all from the monthly subscriptions to "the leading financial news service" (see below). That seems farfetched to me. Just wondering, like I do on Sundays, did the Billionaire owner of the Bloomberg Cartel participate in any really, really, well timed trades? Ever? 

FLASHBACK: August 25. 2000. It was a Friday. Most traders were in the Hamptons. At 10;13 a.m. fortunes were made, and lost, when Emulex dropped from $103 to $32 in about ten minutes, due to a fake news story reported by the Bloomberg News Cartel.




Sun, 05/12/2013 - 22:01 | 3554885 Careless Whisper
Careless Whisper's picture

@ Zer0Head

thanks for the link.

Many current and former Bloomberg employees say they have been told the company keeps a record of every action taken on a terminal, whether by staff or outside customers, in a practice known as keystroke logging.

Noooooooothing to see here. Move along.

Sun, 05/12/2013 - 22:41 | 3554996 Zer0head
Zer0head's picture

not to mention if Bloomberg contributors also had similar access you know guys like Rattner, Levitt, Ploooufffe etc


the ability to watch in real time what the likes of Jamie. Lloyd, Warren and their minions were doing could certainly be a temptation to even the purest of the pure of course consumation is a different thing and clearly none in the Bloomberg fold would ever sucum.


but why not ask for his thoughts on the matter - Matt is the LoProfile brains behind much of the operation and Mikey`s partner from the early days (whe knew?)


I'd suggest you ask Mike but I think there is a Chinese firewall betwixt him and 499 Park though I am not sure if that same firewall exists betwist Mike and Willett at 78th & Madison and Willett and 499 and of course Rattner

and then there's the gossip

Sun, 05/12/2013 - 22:58 | 3555041 Ban KKiller
Ban KKiller's picture

Wall Street is honest. Honestly corrupt to the bone. Crooks stealing from other criminals...I love it. 

Mon, 05/13/2013 - 01:13 | 3555293 Non Passaran
Non Passaran's picture

What an idiot.

Why would they log "keystrokes" when they can simply keep server-side logs.

And anyone who thinks this is somehow a big discovery is an idiot too.

Mon, 05/13/2013 - 01:59 | 3555318 Nage42
Nage42's picture

BlmB server-side logging would only have BlmB-destined traffic logged; whereas client-side logging tracks everything you do (within other application contexts).
It's not like bigwigs even look at the market anymore. Anyone in the game knows that those above SVP/D spend 50% of their time deleting^H^H^Hreading cooperate HR spam and underlings' sh1t-fights, 25% reading PPT presentations from their departments falsifying progress, and 25% of their time falsifying their own progress to their directs.

BSDs looking at the market... Ha! What a joke.

Sun, 05/12/2013 - 22:07 | 3554905 LawsofPhysics
LawsofPhysics's picture

So it would appear that the Warlords (cartels) are getting their tribes in order.  Good, it won't be long now, got popcorn, should be a good show.

Sun, 05/12/2013 - 21:26 | 3554796 HulkHogan
HulkHogan's picture

If they allow rates to rise, the markets are supposed to go down. Let's see if either happens.

Mon, 05/13/2013 - 07:46 | 3555607 orez65
orez65's picture

If they allow rates to rise the bond market will go into panic selling.

And the budget deficit will increase.

And taxes are going up so the economy will slow down.

And Europe is going into depression which will further slow down our economy leading to lower government tax receipts ...

QE to infinity and beyond.

The Fed is just tossing "red herrings"

Sun, 05/12/2013 - 21:31 | 3554806 kito
kito's picture

Devo more rumors from somebody who knows somebody who is a big bullion dealer who swears the comex is soooo close to defaulting this time.........

Sun, 05/12/2013 - 21:36 | 3554821 fonzannoon
fonzannoon's picture

I keep coming back to Cyrpus Kito. The big bad Russians got their money out while the little guy never had a chance. How could it be that I can go out tomorrow and buy gold (granted 6% plus over spot) and some big shots somewhere are getting cut off. It just seems like that is not the way it would work.

Sun, 05/12/2013 - 21:48 | 3554855 devo
devo's picture

It's smart to have some gold, but Mike Maloney is Baloney. Trading a few ounces for a house...and people believe him. Sprott selling his silver...etc. These guys sell to the paranoid. Again, not that gold is bad, but let's be realistic. If it ever is repriced expect 80%+ windfall taxes. You can't win in gold unless you bought pre-2004 or there's an entirely new government that embraces it. And all signs are th world will embrace bitcoin before gold.

Sun, 05/12/2013 - 21:50 | 3554868 fonzannoon
fonzannoon's picture

Nah. That is where I disagree. The U.S has no way out except hard default or inflation. None.

Either scenario means the currency, at a minimum, gets beaten to shit at some point. It's just a matter of when, and how bad.

They can go for the windfall tax. Good luck tracking transactions.

Sun, 05/12/2013 - 22:02 | 3554886 devo
devo's picture

Good luck tracking transactions.

Maybe offline, but based on the warning signs, it seems we'll need to use our real name, social, etc to login to the internet.

They've manged to devalue the dollar some ridiculous % since 2008 yet nobody cares, so I am not sure default or inflation are the only ways out. They might be able to use propaganda or force (e.g. purchase stocks, savings tax, wealth tax, increase property tax, etc). If this is done in an environment where gold carries an 80% windfall tax there's no escape. They're going to fuck everyone, and for posterity and history (i.e. to teach future Keynsians), I wouldn't be surprised if it's the minority protecting themselves with gold. Then they can write it off once and for all. I plan to get F'd in the ass no matter what I hold. I think everyone should. Mike Maloney is on crack.

Sun, 05/12/2013 - 22:07 | 3554909 fonzannoon
fonzannoon's picture

I'm happy for u that u are somehow not getting fked in the ass like the rest of us have been for years already.

Sun, 05/12/2013 - 22:23 | 3554949 kito
kito's picture

They don't care about gold....they want dollars...they want part of your asset portfolio.....and most people don't have gold and would likely sell their gold teeth and chains if things continue as as they are....

Sun, 05/12/2013 - 22:47 | 3555011 Rusty Shorts
Rusty Shorts's picture

"They've manged to devalue the dollar some ridiculous % since 2008 yet nobody cares"

 - the real crash of the dollar was a silent one, from 2001 to 2008, when the price of oil went from $27 to $92 (barrel)...and still no one cares.

Mon, 05/13/2013 - 06:31 | 3555501 negative rates
negative rates's picture

I'm long high quailty weed.

Sun, 05/12/2013 - 22:19 | 3554942 kito
kito's picture

Fonz you forgot about the global wealth tax...that would not wipe the currency and would feed the monsters.....

Sun, 05/12/2013 - 22:24 | 3554953 fonzannoon
fonzannoon's picture

it's going to be amazing to see the coming ebb and flow of money all over the globe.

oh where oh where to put my 2k.

Sun, 05/12/2013 - 22:29 | 3554966 kito
kito's picture

As per whitenight I'm shorting treasuries bitchz.....

Sun, 05/12/2013 - 22:36 | 3554987 fonzannoon
fonzannoon's picture

U and Bill Gross. Except his fund is loaded up on treasuries.....

Sun, 05/12/2013 - 22:44 | 3555007 kito
kito's picture

maybe whitenight is bill gross......................

Sun, 05/12/2013 - 23:38 | 3555137 kchrisc
kchrisc's picture

Hyperinflation is baked into the cake because when the "reserve" status evaporates, all those trillions of printed dollars, from bonds to mattresses, will come flooding back to the US. Foreigners will buy any and everything they can get their hands on.

Mark my words: the US will be the only nation in history to implement capital controls on currency flowing IN.      hujel

Sun, 05/12/2013 - 21:58 | 3554880 akak
akak's picture


Again, not that gold is bad, but let's be realistic. If it ever is repriced expect 80%+ windfall taxes.

Devo, need I point out that gold has ALREADY been "repriced" by upwards of 500% in the last 12 years, without any of the dire warnings of "windfall taxes" falling on it or even being discussed? 

I think your fears (or fearmongering) are much ado about very little.

Sun, 05/12/2013 - 22:04 | 3554897 devo
devo's picture

I'm not fear-mongering. I love gold and own it. I just don't think I/we will be allowed to win. That's reality, not fear.

Gold has a higher tax rate than equities, and times aren't desperate enough yet to warrant a windfall. They're still trying to appear in control. Taxing gold shows a loss of control.

Sun, 05/12/2013 - 22:15 | 3554922 fonzannoon
fonzannoon's picture

no one who has ever won anything substantial was "allowed" to win it.

I think it's not about the day gold explodes higher. the dollar will be revalued at some point. The hard part will be to not cough up whatever you have on the way to going broke from now until then. When the dollar gets revalued the "social fabric" getting torn to shreds won't make the scene very pretty afterward either. Good luck.

Sun, 05/12/2013 - 22:47 | 3555013 PiratePawpaw
PiratePawpaw's picture

I agree fonz, the hard part will be in the getting from here to there.

Sun, 05/12/2013 - 22:16 | 3554937 LawsofPhysics
LawsofPhysics's picture

What will be "allowed" will depend on resources and location.  Shit, if things really went south (like losing electricity to the entire L.A. basin for a few months), homes will be fucking taken by the most organized, well stocked, and best armed/trained mob.  History is pretty clear on that.  

Sun, 05/12/2013 - 23:31 | 3555116 GeorgeHayduke
GeorgeHayduke's picture

Any large metropolitan area in the US without electricity for a few weeks, let alone a couple of months or more, and all bets are off for holding onto or planning for anything that might help you through it. At that point it likely will boil down to who you are allied with and how under the radar you can eek out an existence or if you can show enough force to be left alone. Mad Max and the Thunderdome would look like child's play once things broke down...about ten days to two weeks I would guess if not sooner. The veneer of civilization is extremely thin already and it will fall apart quickly once inconvenience turns into desperation.

Also, considering all the military hardware and gizmos we have I doubt the military, or the police (which are about the same anymore) would do little more than stake out their own claim in the chaos. They may put on a nice show for a while, but 4 weeks without any electricity and I'm guessing things get real dicey. That whole "to protect and to serve" BS won't show it face, except to protect and serve their own.

Maybe I am wrong and people will prove me wrong if such an event happens. But at this point I'll lean toward the cynical side of that bet.

Sun, 05/12/2013 - 22:50 | 3555019 kito
kito's picture

sorry devo, i doubt they go after tyler has pointed out time and time again, they will tax the dollar based assets......they will come in and in one fell swoop tax your 401k, money market account, ira, real property....they will confiscate any money in any bank that goes under rather than bail out the banks....... anything that is easy for them............................that is why i still believe that hyperinflation just isnt in the cards.....there is still lots of private wealth out there for the taking..trillions and trillions...better for them to take the dollars rather than ruin the dollar....................cyprus has set the course folks........physical cash will be very very valuable......................

Sun, 05/12/2013 - 22:58 | 3555039 fonzannoon
fonzannoon's picture

and here is where I see it different Kito. It just seems so much easier to generate a crash at some point and blame wall street bad guys and make the public an offer they can't refuse. Something like an offer to give your post crash balance a 25% bonus and a governemnt guaranteed 4% interest rate in return for the government getting control of the principal balance. u get a 4% roll up rate and a 4% payout rate at age 65.

The point is they would get the same result except they look like the good guys, and we all run into their welcoming arms.

You and this Django unchained version....i just don't see it.

Sun, 05/12/2013 - 23:04 | 3555057 kito
kito's picture

ok fonz, getting skanked is very viable and ive called for that scenario before..........but how is that destroying the underlying dollar??? does skanking that lead to hyperinflation??? get me from point A to point B so that i can buy some gold when it hits 1200..................

Sun, 05/12/2013 - 23:11 | 3555069 fonzannoon
fonzannoon's picture

sure. You overtly take my 401(k) in a very in my face type of way. then I guess there is nothing I can do about it. however, you just made it clear to even the dumbest sheep, who the enemy is. So every dollar earned after or not taken, will leave the system. The scenario u describe seems to actually align the sheep and the gold bugs together as the sheep finally realize who was right to be scared all along. 

Your scenario springs up black markets like nothing we have ever seen.  It's just easier to crash the whole thing. Lay the blame at the feet of a bunch of rich people, and be the good guy.

Sun, 05/12/2013 - 23:23 | 3555096 kito
kito's picture

or the wealth tax is pegged as an attack only on the rich....a sort of grandpa warren endorsed "fairness" move....perhaps only accounts that have a minimum of a million.......then the sheeple cheer with joy that they can still get fat, psychotropically happy, and rich with debt.......and taken care of because it will be the evil rich guys who are going to could be a populist play that allows for confiscation...........this would bring the sheeple to a rousing ovation!!!............................and i dont see how that destroys the dollar............

Sun, 05/12/2013 - 23:31 | 3555111 fonzannoon
fonzannoon's picture for everyone with a mil, they take every other dollar and find a non dollar store of value to escape further skanking.

for everyone under a mil. u think they stick around in dollar based accounts or gtfo and do the same?

I don't see how that strengthens the dollar in any way.

I really think the wealth tax will come in the form of the new C note in October. It's time to force that cash out into the open.

Sun, 05/12/2013 - 23:53 | 3555173 kito
kito's picture

Elaborate on the c note.....forcing cash out in the open??? I see much or most of it in the you mean the offshore accounts???

Sun, 05/12/2013 - 23:40 | 3555144 gonetogalt
gonetogalt's picture

There's a relevant article at 24hr  gold dealing with asset confiscation, worth reading.

Sun, 05/12/2013 - 23:51 | 3555171 kito
kito's picture

Kindly link.......

Mon, 05/13/2013 - 00:12 | 3555203 TheProphet
TheProphet's picture

No they won't. This perfectly describes the precariousness of our position.

IF they let a major bank fail and hack depositor accounts, the very next day there would be a run on every single bank.

They simply cannot print $100 bills fast enough to meet the demand. To be sure, as I recently posted herein, that despite the Fort Worth Texas mint running the $100 printing presses WFO (wide fucking open) 24 x 7 for the last five years, the FT reported two weeks ago that the float of $100 bills has increased by only 42%.

You get the point... no, they WILL bail out bank depositors with ever more worthless currency until it becomes impossible to do.

Then, it's katy-bar the door.

Sun, 05/12/2013 - 22:54 | 3555030 Divine Wind
Divine Wind's picture




We need to keep in mind that aside from paper Au, U.S. buyers represent only a small fraction of global phyz sales.


Sun, 05/12/2013 - 22:15 | 3554935 kito
kito's picture

Tis true fonz...kwn bullshit.....and I don't trust what sprott says.....

Sun, 05/12/2013 - 22:18 | 3554940 fonzannoon
fonzannoon's picture

well i sure as shit don't trust the msm, and there are a lot more of them. so where does that leave us?

Sun, 05/12/2013 - 22:27 | 3554961 kito
kito's picture

Well in the upside down world msm gives you huge stock gains the past two years and sprott gives you -40% I'm as confused as you.....I'm going to continue holding cash for now...dry powder......

Sun, 05/12/2013 - 22:35 | 3554978 fonzannoon
fonzannoon's picture

one of them is setting a trap. either msm is fattening up those 401(k) accounts for their own purposes or Sprott is selling me silver and taking my dollars and buying lulu lemon and priceline in his brokerage account.

I think we all agree no one gives a shit about the middle class, so maybe it's both.

Sun, 05/12/2013 - 23:07 | 3555063 kito
kito's picture

you know what pulls at me???? this slight nagging feeling that somehow im deluded, and everybody here is deluded....and that ive fallen for groupthink...and that they WILL start tapering regularly...and that stocks continue to march higher....that somehow ive overthought this whole thing......................and that im flat wrong............

Sun, 05/12/2013 - 23:17 | 3555082 fonzannoon
fonzannoon's picture

that should pull at you. You should constantly consider those possibilities. Or that the U.S can continue to run debt up by the trillons while keeping a gun pointed at everyone and they just deal with it. Or that as bad as it is here people all over the world would still flee here if they can cause it's still better here.

Don't get to crazy with it though. Things are falling apart economically. it's undeniable. 

Sun, 05/12/2013 - 23:24 | 3555101 kito
kito's picture

perhaps our congress does act in our own interests???? and that they will save us???????..........................oh nooo....what is happening to me????????!!!!!!!!!!!!!!!!!!!!!!!!

Sun, 05/12/2013 - 23:29 | 3555114 fonzannoon
fonzannoon's picture

now you are nuts,

Sun, 05/12/2013 - 23:41 | 3555147 akak
akak's picture

Just a word of warning Kito, once you go full-retard and start babbling about "US 'american' citizenism" I will be forced to automatically downarrow every one of your posts.

Sun, 05/12/2013 - 23:56 | 3555177 kito
kito's picture

Helllppp akak....I'm growing fond of our overlords!!! I have a sudden urge to open a new credit line!!!!

Mon, 05/13/2013 - 03:48 | 3555390 Bill Shockley
Bill Shockley's picture


There will be very short period to turn in gold/silver and paper money for chits.

It will be a universal world currency collapse.

They will digitalize all the currency. You will get a credit card and it will represent your assets.

Good luck.

Selling gold will be illegal as will using paper money.

The black market will be very real and the immediate future will turn on the willingness of the police military to unload on citizens.

In the last depression people bartered for food, fuel, medical care, drugs annd intoxicants. And sex.


Please study the Russian devaluation, read 'A tale of Two Cities' and 1984. Let's hope that criminality is as powerful as the state since the statewill attempt to control food and fuel.


Food stamps are just for practice.


The system will be taken down by the 16 year olds when they can hack more freely.


No worries, only 3-4 years of chaos. The USA will just be the States of America.


Virginia can go fuck itself, they lost the last Civil War and they will lose this one too.


They are lazy fucks. Always have been. Rebel rabble.

The East coasters and Southerners are done.

Stick a fork in them.

They can  have what they got which is little.

I feel for them but they have brought it on themselves.

When the poor white trash gets done with them they will wish they had used more compassion....




Sun, 05/12/2013 - 21:32 | 3554807 Unpopular Truth
Unpopular Truth's picture

The gold price drop looks desired: Stop or evern threaten to stop QE; cause sheeple to sell gold, so a certain few get to cover up some physical gold shorts...

Sun, 05/12/2013 - 21:47 | 3554850 philipat
philipat's picture

Gold dump was part of their intention wasn't it? Thing is, isn't it equities and bonds that really should be dumping? And it's only paper not physical Gold which is dumping. Physical sales are throigh the roof and likely to stay there.

PS. Fuck you Bernanke

Sun, 05/12/2013 - 22:51 | 3554997 FreeMktFisherMN
FreeMktFisherMN's picture

What I would say, devo, is that more and more people are 'awake' that this whole thing is a farce, what with SP500 at all time highs and bond funds still so well bid. Whether they are awake on a 'ZH' level is another story, but the bottom line is that those buying physical are not buying it for a quick flip. 

Gold is money, and as insurance, people don't care about what might seem like a fluctuating value of this insurance gold provides. It is always what it is, and it cannot be printed, and it has always been the premiere store of value. That's its value: it stores value. Notice that gold and crude have been moving pretty closely together, with gold going down to 1330 and crude also a few weeks ago at $89 at same time. Gold will preserve and enhance purchasing power. The one way to not get totally wiped out.


I think those holding it are getting stronger and stronger. Keep in mind it's already astronomical the amount of fiat they've already printed. 



Sun, 05/12/2013 - 21:15 | 3554759 albertchampion
albertchampion's picture

but this is not physical. this is still paper. comex, lbma, and gld manipulation.


Sun, 05/12/2013 - 21:38 | 3554833 devo
devo's picture

It's physical, bud. I can buy a coin near spot.

Sun, 05/12/2013 - 21:20 | 3554763 dracos_ghost
dracos_ghost's picture

Summarized by Clevon Little in little over a minute and a half of Blazing Saddles:

All theater and no bite on Bernanke's part. I hope Hilsenrath got a nice dinner and some cuddling afterward for this shite. Boy, sure glad that we have the best and brightest on the job looking out for us dummies.

Sun, 05/12/2013 - 21:22 | 3554773 LawsofPhysics
LawsofPhysics's picture

Paper gold is not physical gold.  Mark to fantasy is still very much in play.  Turn paper into physical assets of all kinds, especially since the central banks are giving it all away.  Nothing changes at this point until paper and "collateral" is no longer accepted.  Then we all go to the "mattresses" to sort it all out.  Same as it ever was.

Sun, 05/12/2013 - 21:22 | 3554776 Whatta
Whatta's picture

BTFD...they are trying the misdirection play to slow the bubble formation a bit.


Sun, 05/12/2013 - 22:29 | 3554778 NoDebt
NoDebt's picture

The Fed is doing QE for two reasons.  If the reasons go away, QE goes away.  The reasons, however, are unlikely to go away:

1.  Half of QE4EVA is buying motgage backed securities, getting that toxic crap off bank balance sheets while paying banks full "mark to unicorn" prices.  You know, the stuff that TARP money was supposed to buy and required congressional approval to do in 2008 but went instead to forced recapitalizations (yeah, like they didn't know that's what they were doing going in.  Please!).  Well, now they're finally doing MBS purchases with plain-ol monetary policy and NO congressional approval (a fact I'm STUNNED does't get more attention, even on ZH).  There's plenty left to buy and the TBTF banks are lovin' it.  Not going away any time soon.

2.  The Big Kahuna- monetizing huge chunks of government debt.  Does anyone really think there will be a shortage of government debt to buy in the future?

They'll threaten to take away the punch bowl.  They might even do it for a few months, but they'll be back and bigger than ever when it restarts.  Your grandchildren won't have to read about QE in history books- it will still be happening when they're old enough to understand what it is.

Sun, 05/12/2013 - 21:22 | 3554779 Seasmoke
Seasmoke's picture

One of these days in 2013 , physical will no longer follow paper.

Sun, 05/12/2013 - 21:30 | 3554787 fonzannoon
fonzannoon's picture

Why would they ever wind it down? Look at that Nikkei. Japan is proving Krugman was right. You just have to go full full retard. Then you shoot straight to the promised land.

This all just sounds so QE2. They plan on ending it. Gross says go short. The market hangs in there for a bit, then tanks. Rates drop. QE7 gets unleashed.

Sun, 05/12/2013 - 21:35 | 3554815 LawsofPhysics
LawsofPhysics's picture

If "rates dropped", there would be no need for QE as this would imply a strong bid under treasuries.  The Fed is bidding on treasuries and buying 70% of the issuance.  Go ahead, take away that bid, I double dog dare you.  The recent flood of Japanese paper might flow there for a little while, but supply lines are tight around the world should the earth print like the Japanese, it will only kill fiat quicker.

Sun, 05/12/2013 - 21:39 | 3554837 fonzannoon
fonzannoon's picture

They took that bid away after QE2. They downgraded the US debt on top of it. Rates fell. They still ushered in Twist soon after. All I am saying is we have been here before. You know damn well they won't allow a rate spike. So do I. This whole thing is just a bunch of shit, whatever it turns out to be.

Sun, 05/12/2013 - 21:43 | 3554846 Everybodys All ...
Everybodys All American's picture

No twist available now though. That duration is long gone.

Sun, 05/12/2013 - 21:47 | 3554856 fonzannoon
fonzannoon's picture

I can see the idea that the Fed tries to take a small, temporary break from QE4eva 85 bil a month to try to prove a point. But I think anyone on here who actually thinks it's anything more than that is fundamentally insane.

Sun, 05/12/2013 - 22:26 | 3554952 NoDebt
NoDebt's picture

I wish I had said that, above!  Total agreement on that point.  The Fed is running the show right now and they have no choice but to keep going (with occasional "brake check" diversions to obfuscate the inevitable overall trajectory). 

People who think the Bond Vigs are going to swoop in and change the game are sadly mistaken.  They might be fundamentally right in the long run but that doesn't help when the Fed can CRUSH them on any given day at their whim.

This only ends when the printing press can't help any more and not a day sooner.  Japan has shown the printing press' Kung Fu is strong.  We're good out to at least 225% debt/GDP according to the Japan template.  Probably even further.

Sun, 05/12/2013 - 23:19 | 3555086 AynRandFan
AynRandFan's picture

Don't you wish we were ascetic and strong, like the Japanese?  I think the potential for a "panic party" is a lot higher over here.  A simple bout of runaway fuel prices will get folks real excited.

Sun, 05/12/2013 - 21:34 | 3554814 Freebird
Freebird's picture

you know what? can we get him locked up?

Sun, 05/12/2013 - 21:37 | 3554825 ISEEIT
ISEEIT's picture

Whatever it is that this whale is about to do next was known by 'all the right people' weeks ago.

Trade accordingly.

Sun, 05/12/2013 - 21:38 | 3554831 Downtoolong
Downtoolong's picture

What difference does it make anyway how we all get the news, when JPM, Goldman, and every other TBTF financial institution gets it before we do? I think the Hilsenrath leak is supposed to make it look like Ben is trying to preserve fairness in the markets ala the element of surprise or something. Like everything else the Fed does, it's still one lame joke on us.

Sun, 05/12/2013 - 21:41 | 3554842 Everybodys All ...
Everybodys All American's picture

I'm thinking if they do begin a wind down it's going to be reduced by $10 billion in each of mbs and the treasuries for a total of $20 billion. Subsequent meetings would decide whether to act again and it would presume the stock market doesn't just take a dump. Theoretically it would take about six months to wind it down to zero if they proceeded after each meeting. Personally I think this makes sense but how will the market react and can the bond markets soak this extra money up and at what price do interest rates rise.

Interest rates rise and this country is fubar.

Sun, 05/12/2013 - 23:11 | 3555070 AynRandFan
AynRandFan's picture

Fannie and Freddie are supposedly making money, so I figure MBS comes off first.  Of course, the Fed may be doing 10 things that actually matter behind the scenes and this is just a sideshow.  Either that, or it takes the brain of an ant to make money in stocks.  Or both!

Mon, 05/13/2013 - 08:03 | 3555638 orez65
orez65's picture

An interest rate increase will result in panic selling in the bond market.

Sun, 05/12/2013 - 21:44 | 3554847 holdbuysell
holdbuysell's picture

If Bernanke wants to save his banks, he has to print until they are solvent again in NOMINAL terms. It's really that simple.

Maybe he tapers, maybe he doesn't. But the big print is coming and/or will continue.

Either way, we're moving to a new currency system, as history as shown.

Sun, 05/12/2013 - 22:04 | 3554895 W T F II
W T F II's picture

1) Anyone who doesn't believe Hilsenrath IS the "Fed's Mouthpiece" is a FOOL.

2) Anyone who believes the Fed did not mean and approve every letter of every word of every sentence of every paragraph of this release is a FOOL.

3) Anyone who does not take a substantial amount off the table at this clear warning signal is a FOOL.

Sun, 05/12/2013 - 22:10 | 3554918 fonzannoon
fonzannoon's picture

WTF is it clear by now that the fed has a special "early distribution list"? Is it safe to assume that if this is for real, they got the memo and got out of the way already? So when whoever is left decides to sell now, where is the bid going to come from?


Sun, 05/12/2013 - 23:06 | 3555058 W T F II
W T F II's picture

YES...I believe that is so. Look at the length of this 'distribution top' and VIX bobbing up and down off it's bottoms. A whole s#!tload of equities were sold over the past four months and a whole s#!tload of VIX was bot...!! The reason it has taken so long is that the volumes have been tepid at best and the 'greater fools' less prevelant.

Sun, 05/12/2013 - 22:32 | 3554970 Rusty Shorts
Rusty Shorts's picture

"1) Anyone who doesn't believe Hilsenrath IS the "Fed's Mouthpiece" is a FOOL."


...have a look at this...

Sun, 05/12/2013 - 23:02 | 3555051 W T F II
W T F II's picture

OK, so the ESF has all the power. If, as the video asserts, the Fed is just a tool and Hilsenrath is a tool of the Fed, then Hilsenrath is a tool of the ESF.

Lastly, the video asserts that the ESF somehow crashed Lehman and got Obama elected. If that is true, and the power of the ESF emanates from the Sec of the Treasury, then Hank Paulson wanted Obama to win, because HE was in charge when it all went down...!!

Sun, 05/12/2013 - 23:19 | 3555089 Rusty Shorts
Rusty Shorts's picture

His name was Hank Paulson

Sun, 05/12/2013 - 23:24 | 3555102 W T F II
W T F II's picture

that's what I said in my post...!!

Sun, 05/12/2013 - 22:11 | 3554921 akak
akak's picture

I don't give a damn what this bankster mouthpiece has to say.

Sun, 05/12/2013 - 22:55 | 3555033 kito
kito's picture

akak, i had asked you the other day.......what happens if what i fear is the choice path...that they just go for the assets, as tyler has pointed to......not print to death....but just confiscate trillions throught a tax for the "global good" do you see this scenario playing out for the world????

Sun, 05/12/2013 - 23:42 | 3555151 akak
akak's picture

Kito, I think that is EXACTLY what is going to happen.  AND significant currency debasement (much more than now).

It's not an either-or choice for them.

Sun, 05/12/2013 - 22:20 | 3554943 lolmao500
lolmao500's picture

Game-changing Russian missiles 'already in Syria' Obama aware, disappointed in support of regime

A Russian convoy of game-changing S300 missile batteries reached Syria last week, claimed Arab intelligence sources speaking to WND.


Sun, 05/12/2013 - 23:13 | 3555074 the grateful un...
the grateful unemployed's picture

the arab spring, vis a vis alqaida rebels sponsored by the CIA ends here. don't cry too long, that's alqaida they're shooting the rockets at

Sun, 05/12/2013 - 23:23 | 3555099 W T F II
W T F II's picture

Russians asserted these were simply a delivery from an order submitted quite a while ago.

Mon, 05/13/2013 - 00:42 | 3555255 cosmictrainwreck
cosmictrainwreck's picture

remember those videos of Obummer sitting (squirming) with The Vlad? Ha! How pathetic was that? I got a feelin' we may yet see some reeel "mine's bigger than yers" some day....

Sun, 05/12/2013 - 22:25 | 3554957 MFLTucson
MFLTucson's picture

This will continue as one thing fails a new plan will be ushered into the media circus.  They want the stock market to level out and they want Gold down so the Jewish bankers (now out of Gold)  can buy what gets dumped as cheaply as possible before the collapse.  They could not get out of buying bonds because no one else is stupid enough to buy our crap!

Sun, 05/12/2013 - 23:04 | 3555055 AynRandFan
AynRandFan's picture

You know what really pisses me off?  The fact that Wall Street types will accept any system the government hands them and trade it like it was real.  It's become a game show.

Sun, 05/12/2013 - 22:45 | 3554979 Peter Pan
Peter Pan's picture

It is evident that after 5 years of GFC there is still no real improvement, no real solution and no consensus on the way forward.

The provison for employment to fall in order for the FED to withdraw from QE is a load of hogwash. Not only are the definitions of employment totally watered down to include people working only a handful of hours but it also overlooks the fact that the invalid proportion of workers has shot up from 1 in 51 in 1968 to 1 in 13 today.

It is well known that states systematically push the unemployed onto invalid payments so as to remove them from their budgets given that these benefits are paid by the FED govt as opposed to unemployment benrfits costs which are shared.

Therefore if the proportion of invalids in the workforce stayed where it was in 1968, only 2.5 million people would be on invalid payments as opposed to 10 million. Therefore add 7.5 million to the unemployment list to see what the true rate of unemployment is.

Bottom line is that unemployment and quality of employment earnings are still very poor and the FED knows this.

It is also starting to realise that QE has delivered a constantly growing percentage of assets and income to a tiny minority.

I suspect therefore that some new form of QE will make its way into the mix so as to enable an ""income" driven rise in the economy rather than an asset led recovery that has been achieving zilch.

Sun, 05/12/2013 - 23:02 | 3555050 AynRandFan
AynRandFan's picture

Ben is sending me a check?  That'll be the day.

Sun, 05/12/2013 - 23:34 | 3555125 Peter Pan
Peter Pan's picture

No check I am afraid. Just an important looking envelope.

Sun, 05/12/2013 - 23:31 | 3555117 QQQBall
QQQBall's picture

Peter Pan - good post... added support is the apt market is on fire while the commercial/industrial markets continue to languish even with SBA throwing money at owner-users. Why the disparity? B/c the apt market runs on "people have to live somewhere" and folks are tired of getting hosed by ZIRP.. The C&I markets; however, rely upon businesses and profits and margins are getting squeezed so owners are still cutting rates on exting leases. Lease rates are weak - the difference b/w fee simple and leased fee values is huge...

Sun, 05/12/2013 - 22:49 | 3555016 They trynna cat...
They trynna catch me ridin dirty's picture

I just realized that the Fed dialing back any their stimulus--QE, Operation Twist, etc.--is the same exact thing as them raising interest rates. 

They lower rates and hold them low by increasing the money supply, and raise rates by decreasing the money supply.  If they stop ANY of their stimulus, it is the same as raising rates, which means that the entire house of cards is then in jeopardy of coming down.  An announcement that they are tapering stimulus = be ready for SHTF at a moment's notice.

Sorry, just thinking out loud.


Sun, 05/12/2013 - 22:58 | 3555040 AynRandFan
AynRandFan's picture

The ONLY reason I can think of for timing a liquidity pullback now is to test the market's reaction.  Baby steps, maybe over the cliff.

Sun, 05/12/2013 - 23:07 | 3555061 They trynna cat...
They trynna catch me ridin dirty's picture

They already know the reaction.  I simply cannot believe Bernanke et al are that stupid.  Evil, yes, but stupid, no.

Like Peter Schiff says, trying to pull the stimulus out from under this economy is the equivalent not just of trying to yank the tablecloth out from under the table setting without disturbing anything--it's the equivalent of trying to yank out the table.

Sun, 05/12/2013 - 22:50 | 3555018 Antifederalist
Antifederalist's picture

The Fed's new plan is confuse the market with this bullshit.

Will they? Won't they? It is all very serious stuff and they have "great minds" working on the problem.

But the thing is: it does not fucking matter. They are fucked. No matter what they do, they are fucked. There is a tide in the affairs of men.....and they are on the wrong side of it.

Things must be getting desperate. A week ago they move to "increase or decrease". Now they talk taper. Did the equity melt up have anything to do with this move? Hmmmm. Maybe we will get minute by minute FED talk in the future. Better yet, why don't they just tell us where they want the market. Since it is not a market anyway.

Long gold. Long silver. Patient.

Sun, 05/12/2013 - 22:51 | 3555022 AynRandFan
AynRandFan's picture

Summary:  We are going to St Louis but we don't know when we're leaving and we might get a flat tire on the way.

Substitute normal monetary policy for St Louis.

Nothing but obfuscation.  I don't believe for a minute that the Fed cares whether Mr. Hilsenrath lives or dies, or loses his reputation.  The Fed can and will float trial balloons until folks run out of ammo.

Sun, 05/12/2013 - 22:52 | 3555024 sangell
sangell's picture

Fed Governors debates are redolent of medieval cardinals debating about the number of angels that can dance on a pinhead. Full of theological certaintude but utterly irrelevant to the lives of people dealing with the plague, Whereas once upon a time Central Bankers believed they could 'manage' the world via interest rate signals that 4 in 1 screwdriver has been tossed from the tool kit and they've stripped the heads of the screws holding the economy together such that they can never again tighten them. They are left trying to finesse the economy with hammers and pry bars and their handiwork is anything but 'workmanlike'. More of a Joe McGee repair job.

Sun, 05/12/2013 - 22:53 | 3555027 NOTfromSanFrancisco
NOTfromSanFrancisco's picture




Is H-rath really serious about this article he wrote?...

Here's what I got out of it...

The Fed is pumping money into the economy.

The Fed might slow down.

The Fed might remain steady.

The Fed might increase.

We are not sure when this will start, if it does start.

Some Ged governers think they should slow down.

Bernanke does not care what those guys think.

We're not really sure what the Fed will do.

The markets might be affected by what the Fed does or does not do.



Sun, 05/12/2013 - 23:36 | 3555131 Steel Magnolia
Steel Magnolia's picture

You nailed it. It could also be known as trying to make chicken salad out of chicken shit. Will the people even notice?

Sun, 05/12/2013 - 23:03 | 3555046 q99x2
q99x2's picture

I just learned so much about what might never happen when and if it does that I could eat the ass off a low flying duck and wonder while I'm doing it why matter would ever want to evolve for billions of years to consider such things.

I've been touched by the essence. I've fallen under the Bernanke spell.

Sun, 05/12/2013 - 23:03 | 3555052 Divine Wind
Divine Wind's picture



I wonder why there was an emergency meeting og the G7 in London this week?




Sun, 05/12/2013 - 23:38 | 3555139 knukles
knukles's picture

Or why the bankers had a private meeting with Oblahma last week or so ago.

Was London the New Plaza Accord?
Run the US Dollar Higher?

Sun, 05/12/2013 - 23:10 | 3555068 the grateful un...
the grateful unemployed's picture

dear i am going to take the training wheels off but i will run beside you until you are forty fucking years old. well isn't that the american way?

Sun, 05/12/2013 - 23:27 | 3555106 polo007
polo007's picture

According to Deutsche Bank:

The lack of confidence in final demand that seems to justify corporate reticence has a mirror image in the financial sector’s liquidity trap – the fact that corporates prefer to save and not to leverage and invest. And it seems reasonable to justify the lack of confidence in the context of ongoing and unresolved fiscal tightening; household savings rates that are “naturally” capped not to go to zero or below this time; and a global sector that seems decidedly weaker. In other words, of all the Keynesian circular flow of income external drivers there are none doing any driving except corporate investment. But the Catch 22 is that corporate investment itself is restrained by the fear for the lack of the other drivers! The answer might be waiting for a pick up in the external sector; it might be seeing through the fiscal austerity and or at least suspending or reversing some of it; or it might be further improvement in the household balance sheets via housing. However all of these likely need time.

In this context we can then handicap central bank reaction functions. While we wait for something to give positively in favor of a stronger recovery, policy stays unusually easy. This then creates the dichotomy of buying more time in the near term through easier policy to deliver a proper recovery whilst potentially running the risk longer term of too much inflation the other side. The pent up monetary stimulus that exaggerates a liquidity trap now becomes a challenge to control on the other side. This schizophrenia has been played out numerous times since 2008. And it defines the unusual dislocation between ultra low real yields and high inflation expectations (inflation risk premia) that is also known as financial repression. Financial repression being one of the metrics that is supposed to encourage more risky lending and to break the liquidity trap.

The consensus of course is that after a certain amount of financial repression, the world will sufficiently improve and central banks have the tools to contain inflation so that the bulk of financial repression is contained to ultra low real yields rather than ultra high (realized) inflation. In this spirit Bernanke and now Kuroda are extremely confident. However we would actually go one stage forward. In the current low growth equilibrium there is a good chance that there is jolt to higher growth because the fiscal dynamics can never be resolved. This is particularly true for peripheral Europe and Japan; less true for the US but then partly depends on the willingness to address structural contingent liabilities. Absent that, the US might well be in the same boat as the others. In this case, the only solution is for the central banks to end up holding the majority of government claims and to consolidate their balance sheets with the government. In one fell swoop, cumulated deficits that may stretch back several years are ex post deficit financed. This would almost certainly break the liquidity trap in that it would represent a massive relief to expected fiscal tightening for the private sector. The central banks would quickly need to use their “tools” to contain a splurge in lending and control inflation. Ex post however there is no reason why inflation would materially rise, as long as liquidity was tightened commensurately with the debt relief implied by consolidated balance sheets of the central banks and the government. Moreover if G3+ acted synchronously, at least for the currency majors there may be little fall out.

So the interesting question is why not? Is there any cost of consolidation when we are otherwise in an eternal liquidity trap? The answer is, unfortunately yes. This would have to be a one shot game. Going forward governments’ would unlikely be able to borrow from the private sector for a long long time precisely because it threatened financial repression, even if only in the kind of negative real rates ex ante rather than even more negative ex post. Instead, government would be obliged to run balanced budgets. These authors don’t think this is necessarily a bad outcome. However it does mean that if and when consolidation comes, as much as possible needs to be consolidated otherwise fiscal policy would be on a perpetual tightening path to run the extant liabilities down. If you are going to consolidate, do it big because you are likely to have only one chance. It may seem extraordinary to think about consolidated balance sheets but there are plenty of examples in history, particularly during wars, of deficit financing. And however outlandish and non consensus it is, remember that a few years ago we talked about QE never ending, which at the time was also outlandish. Consolidation sounds an anathema to consensus but it is a logical conclusion to the liquidity trap and the probability rises each day that growth disappoints.

Sun, 05/12/2013 - 23:49 | 3555166 W T F II
W T F II's picture

Interesting post...BUT, governments cannot borrow from the private sector now. Not even close. Here the Fed is buying mosrt issuance. In Europe, it is the state-sponsored/supported banks or official state pension funds. Meanwhile the BRICS and other members of the G-20 emerging club are fed (every pun intened..!!) up. Therefore, a new currency regime is highly likely...AND SOON...

Sun, 05/12/2013 - 23:33 | 3555107 QQQBall
QQQBall's picture

I wonder how much "off balance sheet" shit the FED has on? I am sure the same discussion was had back in say.... 1913-1914.... Before Nixon defaulted, we were on a defacto gold standard -  Bernanke is a fool; he has a PHD and the PTB puff him up - soon to be knighted like Sir Al, but he is no genius... His policy is simply making the same mistake on a grander scale than Sir Alan made - (see Japan and abenomics 20 years later).  I wonder how much shit and repos Bernank has and what the collateral looks like? Bernanke is sitting there in front of a big shit sandwich and he has NO exit strategy... they will float the hold to maturation baloon - there is always a black swan and when it hits, having hard assets will trump paper with multiple claims. 

Sun, 05/12/2013 - 23:36 | 3555132 knukles
knukles's picture

Having read leaks and minutes for 40+ years all I can say in rereading it is, it's "Nothing more than cool your jets, boys."

If the Fed taketh away punch bowl, the Put under stocks disappears... there is no growth, no earnings left (fired all the people possible) materials prices falling, but strong dollar kills foreign sourced income....
Stocks go down

Fed panics... stocks down and economy crappy?

I cannot believe this is going to be a rapid decrease in QE policy.  The Fed's the only one holding a few of all the broken pieces together.  There ain't nothing else.

But they's gotta stop sometime, no?

On the other hand even stopping the new monetization completely is Not Going To Take All The Excess Reserves Out Of The Banking System... The Time Bomb of Excessive Money and Credit Growth followed by Inflation That'll Make the 70's Look Like Kids Stuff Won't Change

Mon, 05/13/2013 - 00:08 | 3555193 Rusty Shorts
Rusty Shorts's picture

What the hell happened in 1973...??? Time Warp??? 

Mon, 05/13/2013 - 00:26 | 3555235 Rusty Shorts
Rusty Shorts's picture

something big went down in 1973...

Sun, 05/12/2013 - 23:37 | 3555134 ekm
ekm's picture

My answer to all points above:


None of them is Benny's decision.

Sun, 05/12/2013 - 23:38 | 3555140 bsdetector
bsdetector's picture

In a melt up environment who is really and intentionally investing in equities? This new tack looks to me like the status quo is trying to generate some animal instincts motivated by greed. With a centrally planned QE program there is no real chance of winning a big bet... You know like what day traders did years ago? The next step in financial engineering will be to give the appearance of a real market in an attempt to convince investors that the market is real. On some days the markets and/or individual stocks will go down while on others they will rise. Heck, shorting might even become popular. In reality, how can anyone ever trust the investment systems? The systems appear rigged. Hilsenrath's comments prove this fact succinctly. The markets are broken; debt, equities and even gold appear manipulated. This may be a move by TPTB to inject a little volatility in the markets to spur greedy hopes. We will never really know though, will we?

Sun, 05/12/2013 - 23:50 | 3555169 TimmyM
TimmyM's picture

It's all propaganda.
The Fed has to talk exit strategy to make people believe their bullshit is working.
When it doesn't work, they will have some external shock to blame it on.
Then they can say "we were almost there"
That way they can deflect the end the Fed movement.
We will get a big ass war that has most you dumbass sheeple voluntarily giving big gov all your freedom and your money.
They won't need to confiscate jack.
You will be so pissed at some towel head you will bend over and spread em just like a good redneck.

Mon, 05/13/2013 - 00:22 | 3555179 polo007
polo007's picture

According to Bank of America Merrill Lynch:

Easy Fed policy: too much of a good thing?

The costs of easy Fed policy

Fed policy is aimed at stimulating economic activity, which involves incentivizing households, businesses and investors to take more risk. Investors have obliged, resulting in low rates, tight credit and mortgage spreads, and new all-time highs for major stock indices. But some worry the Fed is causing a dangerous search for yield that could lead to new asset bubbles and financial instability. Our assessment is that Fed policy has not led to an increase in systemic risk.

Risk-taking is good; systemic risk is bad

This piece provides a guide for monitoring financial stability and the linkages between asset markets, financial institutions and the real economy. We believe the ultimate question is whether the Fed’s policies have increased systemic risk.

This depends on the following, which we address in the note:

- Do market valuations appear overstretched and are there signs of asset
bubbles forming?

- Is there an increase in leverage in the market or an overreliance on short term funding? Would systemically important institutions be at risk of failure?

- How are the beneficiaries of easy credit using the proceeds? Are they using debt to fund risky investments, buy homes they can't afford or go on a consumption spree? Or is issuance going toward improving their balance sheets and lowering their vulnerably to the eventual rise in interest rates?

Risk transfer underway, but systemic concerns muted

We argue that Fed policies have encouraged a transfer of risk from borrowers (indebted households and corporations) to creditors (investors) who are willing to accept lower risk premiums. Increased real money participation in credit markets mitigates the systemic implications of this risk transfer. Corporate and household balance sheets are healthier, thanks in part to easy Fed policy, but signs of increased appetite for leverage in the corporate sector bear close monitoring.

Fed to stay the course

Our survey of financial conditions and systemic risk supports our base case that the Fed will maintain its asset purchase program at the current pace of $85bn/month through March 2014, followed by a 6-8 month tapering period.

QE will limit the upside in yields

The potential for a sizable rise in yields will be limited if the Fed maintains QE well into next year as we expect. We forecast a gradual rise in 10y rates by year-end.

Mon, 05/13/2013 - 01:48 | 3555244 The Heart
The Heart's picture

When the weatherman says it is going to rain, why is it always something else? Sorta like the talking heads of the money god world.

Here is a great news story linked below. How wonderful it is to see real truth being reported. It speaks to the good guys winning in the war on terror, only there is something horribly twisted and wrong with this war on terror in Syria. It is being found that most of the terrorists are Americans, or American trained. This rebel army that is the same thing as the false meme al-cia-duh is funded and sponsored by the US govt.

"And once these Al Qaeda rebels had been supplied and trained in the use of WMDs by military contractors hired by the Pentagon,  the Syrian government would then be held responsible for using the WMD against the Syrian people."

Now wait a minute, has not the USA been spending trillions on all this gestapo/ss DHS-nazi germany 2.0 act, and now it is becomes public knowledge that the American govt is supporting and funding the very same terrorists that the American govt says they are at war with, and have been since 9/11? How darn crazy is that??

On Benghazi probe, GOP's Issa says 'Hillary Clinton's not a target':

The world is lost when this kind of hooey-ballooie is what it is. To think of all the trillions of dollars that have been spent to defend against the same enemies the US babylonian govt has become in Syria, is a shame and major reason for the American downfall. Ten years time of supporting and funding the very Hegelian monster they created.

It was a great Sunday in the garden. Here comes New Moon Monday, that special day that the babylonians use for the terror they sponsor and fund. The liars in the halls of babylonia are very scared and must produce a false flag event to cover up the cover up that has covered up another cover-up. The endless maze of lies and deceptions is like the endless war mongering for the profits of a few. What a whacked out world in which we day at a time.


Mon, 05/13/2013 - 02:39 | 3555352 pcrs
pcrs's picture

I am stilling wating for the FED to tweet simply up or down in the idiocracy world. Skewering all the muppets the wrong way every time ending up with all the assets and the muppets with all the fiat cash. The state will own everything in the end. Communism wins when education is in state hands.

Mon, 05/13/2013 - 02:51 | 3555359 pherron2
pherron2's picture

seems like a lot of virtual ink just to say BULLSHIT!

Mon, 05/13/2013 - 05:33 | 3555451 q99x2
q99x2's picture

Sen. Loretta Weinberg, Sen. Sandy Cunningham and Sen. Linda Greenstein are heard discussing the just-closed hearing.

“We needed a bill that was going to confiscate, confiscate, confiscate,"

Read more at 
or sign up for a free trial of State Street Wire at 

Mon, 05/13/2013 - 06:29 | 3555497 TruthBeforeAll
TruthBeforeAll's picture

In other news, Iran executes a few bankers...

Mon, 05/13/2013 - 06:59 | 3555531 GraveyardSpiral
GraveyardSpiral's picture


Lets keep this simple (in the vein of Occam's razor).

  1. The Fed removes the punchbowl:


  • UST's are bought? In the bizzaro world, loss of the punchbowl means S&P drops and there would be a "rush' into the percieved safety of US Treasuries, ergo, yields drop and out National debt remains "sustainable" for another day. Oh, and Gold gets smacked down again, what a coincidence.


  • UST's are sold? Even IN this bizzaro world, WHO would sell UST's when the market is tanking.  The sheeple (i.e. fund managers' misallocation of the sheeple's monies) would crowd into UST's and also drive the yield down (allowing interest rates to drop "on their own") without some declaration from the Fed (since they don't have any ammo left)

So, Dr, Engali, Planks, Fonzanoon et al, please, lets expand upon this ...  a (controlled) market tank allows JPM to get on the short side - having sold to the fund managers over the last three months. They benefit on the way down AND yields go down (as if on their own without the fuckenBanke verbalizing any policy statements.

SPX hits 1465 and a magnanamous 'Banke steps in "cuz its the right thing to do"

Mon, 05/13/2013 - 08:18 | 3555663 orez65
orez65's picture

Bond market is four times the size of stock market.

When it starts to sell in advance of rising interest rates it'll be unstoppable.

Until Ben starts buying all sellers.

Voila, hyperinflation

Mon, 05/13/2013 - 08:09 | 3555651 Quinvarius
Quinvarius's picture

Well.  They can't stop buying Treasuries, ever.  That was going on long before 2008.  It can't be stopped.  They might stop buying MBS when the housing market recovers or the banks no longer have any at all on their balance sheets.  At the moment they are subsidizing the creation of more MBS, so that problem is growing.

The Fed is more likely to replace the buying of MBS with some other direct money give away than to stop giving away freebees to the banks.  That being said, QE has no effect on the greater economy.  It cushion the "legging down" process.  But there is no economic indicator the Fed can use to adjust QE because it does not effect the real economy.

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