No Mo' POMO?

Tyler Durden's picture

Authored by James Howard Kunstler via The Burning Platform blog,

Whenever the Federal Reserve wants to tweak the dials of the economy - or pretend that it can - it turns first to its sock puppet at The Wall Street Journal, John Hilsenrath, and “leaks” a rumor of policy change. They like to do this late on Fridays when financial markets are about to close, so that market players will have a whole weekend to ponder the Fed’s actions like medieval viziers reading goat entrails.
Last Friday’s puddle of steaming guts was a supposed preview of the Fed’s “exit strategy” from its reckless policy of “quantitative easing” or “money” creation (or “liquidity,” if you like). In other words, they supposedly intend to stop juicing the financial markets with fake wealth, i.e. capital not accumulated from real productive activity, but just fictively created on computer hard drives. For the past year they have been doing this to the tune of $85 billion a month, “buying” US Treasury bonds and bills and an assortment of miscellaneous securities (mostly trash that can’t be pawned off on anyone else) through their so-called “primary dealer” bank cohorts, the too-big-to-fail usual suspects, who “earn” hefty transaction fees in the process of conveying all these pixels from Point A to Point B. These interventions are called Permanent Open Market Operations, or PoMo.
The theory all along has been that this $85 a month would seep down to Main Street to provoke spending (increasing the “velocity of money) and therefore “jump start” the economy. The theory has proven itself to be complete horseshit, of course. All it has done is suppress interest rates on bonds, depriving old people of income off their savings by so doing. It also artificially jacked up reckless lending on loans for houses, cars, and college degrees, juiced the share price of stocks, and boosted food prices. Meanwhile, an increasingly former middle class languishes in a purgatory of foreclosure, penury, and desperation. The Fed can’t really do anything to help them. It can only burden them with more easy-credit debt, especially their college-age children. But ours is a financialized economy and finance is too abstruse for most ordinary people to understand, so they just muddle along in a fog of dashed hopes and repossession.
Lately, though, the financial markets at the heart of the financialized economy - that is, an economy based on buying and selling increasingly dubious “paper” assets rather than on capital formation through producing things of value - are sending distress signals. The aforesaid efforts at economic dial-tweaking have only produced distortions and perversions in the basic functioning of the markets they’re designed to tweak. They pervert the “price discovery” mechanism by dumping “free money” into equity markets. They distort “risk premiums” by steering money out of savings, where it earns less than nothing, into riskier investments subject to the vagaries of everything from weather (commodity markets) to control fraud (bank stocks) to geopolitics (Toyota stock). They debauch market expectations in general by implying permanent artificial life-support. They promote market gaming such as front-running equity prices via high frequency trading on computers, naked shorting (pretending to borrow shares that, in fact, do not exist) and the abuse of futures markets — lately illustrated in the ongoing smash of paper gold and silver contracts, with the side effect of driving yet more money into stock markets. Finally, they undermine the meaning and value of money itself, which is the most dangerous game of all because when people lose confidence in their national currency, nations dissolve in political chaos.
Despite the aura of control, Fed officials (and casual observers) may sense things spinning out of control. Of course, hyper-fragility is exactly the effect that all the Fed’s own actions would predictably lead to. When you divorce truth from reality, strange things are bound to happen. The Fed ventriloquists who speak through Hilsenrath at The Wall Street Journal suggest they would accomplish their exit from the current $85billion-a-month QE policy in a set of “halting steps” by irregularly dialing down QE issuance month-by-month to fine-tune the results on-the-fly, as markets may require. This is also complete horseshit because they could only accomplish controlled tweakings by somehow signaling their intentions beforehand through some lackey like Hilsenrath. Otherwise, they could not pretend to control the results of their actions. They might as well just throw spaghetti at the wall to see if it sticks. Unfortunately, the “halting steps” idea would only provide even more opportunities for selective, complex front-running, shorting, and gaming — which is to say setting up more dangerous behavior with more uncertain and possibly destructive outcomes.
Anyway, there’s no evidence at this moment that anyone believes what was leaked to Hilsenrath. It could easily be more smoke and mirrors aimed at concealing the fact that the Federal Reserve has no idea what it has been doing and fears the consequences. There is one thing that we know for sure in this strange period when bankers have tried to manage reality in the absence of truth: that advanced industrial-technological economies designed to run on $20-a-barrel oil can’t run on $100-a-barrel oil, and that is why the US economy was subject to financialization in the first place - to offset declining productive activity by an attempt to get something for nothing. Notice that this macro-trend coincided exactly with the rise of legalized gambling all over America. That is how the idea that you could get something for nothing got to be normal. The world is about to find out that you really can’t get something for nothing. It will be a harsh lesson.

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Jekyll_n_Hyde_Island's picture

POMO's damage has already been done. As much as I'd like to believe these rumors they won't be true until real, sustainable economic growth is demonstrated. -- that's the inane justification of POMO's existence in the first place.

Algos, HFTs and shadow funding will be around as long as politicians and banksters are in bed together. 

  I'll believe the funding is gone when ethical people are in Captiol Hill and the inverted aqueduct that is our banking system is purged of it's sewage.

flacon's picture

FED IS NOW OBSOLETE: $GOOG Google can now predict the stock market ""


Shit! It looks like I'll need to invest in a computer now. No more newspaper trading for me! Fuckin' damn. I knew I was late to the party. Fuck me!

LawsofPhysics's picture

Correct, just in case you were wondering were you are in the debt-based system, you are here;


That Peak Oil Guy's picture

This is how we all get to pay for decisions made by someone else 40 years ago.

LawsofPhysics's picture

indeed, a generation of "clickers" that are incompetent when it comes to actually doing something and trillions in debt with no job prospects - "winning".  Let's see if they take it lying down or if some smart kid that went to a trade school starts building depended guillotines and selling them at 20k a pop.  Maybe he'll even be politically correct and call them "claw-back devices".  as is bonus claw-backs, bailout claw-back, pension claws-backs.  You see folks, it's simply a peception and motivation management game.  we the people, have not been providing the correct motivation or perception...

Precious's picture

Bernanke says freedom-of-the-press is the Fed's 1st Amendment right.

Al Gorerhythm's picture

"Let's see if they take it lying down or if some smart kid that went to a trade school starts building depended guillotines and selling them at 20k a pop."

Today's kid will build an app for that.

LawsofPhysics's picture

Unless the app drives an actual robot to get the job done, nothing will actually happen (pretty common result among most of the youth today).

flacon's picture

Since money = debt, and those who are homeless don't have money, then it proves that debt is good because the more debt you have the more money you have. Truly, I have a dizzying intellect. Just wait until I really get going. Hold on... that's MastarCard calling to increase my debt ceiling... 

DavidC's picture

That made me laugh, thanks!


SillySalesmanQuestion's picture

Did the Bernank just figure this out last Friday afernoon...?

asteroids's picture

The story was a "test probe" by the FED to gauge market reaction. They'l scratch their heads over the little while and try something else.

LawsofPhysics's picture

Does goggle make an "app" that delivers essential commodites and funds unfunded liabilities and interest on debt?  This generation is going to be slaughtered.

Totentänzerlied's picture

Stop POMO and I too can predict the stock market: in a word, DOWN.

James_Cole's picture

But ours is a financialized economy and finance is too abstruse for most ordinary people to understand, so they just muddle along in a fog of dashed hopes and repossession.

Most rational people understand this has always gone on and likely will in perpetuity. 

In any case, imo more important than worrying about the necessity for increasing growth is dealing with overproduction.

China's farcical real estate boom is but one of countless examples of the quest for compound growth going horribly wrong. 

Buck Johnson's picture

I agree with you, they can't clean this up without alot of pain. 

LawsofPhysics's picture

"The world is about to find out that you really can’t get something for nothing. It will be a harsh lesson." -  Optimist, nothing will change unless the supply lines break and the SNAP cards stop working, period.  Go away already unless you have a fucking date we can trade on.

kito's picture

the snap cards may always work, yes??? just as the proles had everything they "needed.................

LawsofPhysics's picture

No, see how that worked out in the former Soviet Union.  Plenty of SNAP cards, nothing in the fucking stores.  Seriously, I have done business in St. Petersburg for a long time.  The propaganda for a long time was that American stores were always so full because American citizens were too poor and could not afford to buy anything.  Straight from my business associates.  They always were very friendly because I "had it so rough" growing up there.  Still some of the most generous people I know.

Herd Redirection Committee's picture

Indeed, a person can rationalize anything to themself.

kito's picture

i happen to think they will always feed the ducks...........its the only way to maintain order...............

GeezerGeek's picture

I recall another Soviet-era story illustrating the worthlessness of US cars. Many of them had to be pushed by boats mounted on trailers.

Totentänzerlied's picture

"The propaganda for a long time was that American stores were always so full because American citizens were too poor and could not afford to buy anything"

Obviously neither propagandists nor the propagandized had even the most basic understanding of supply-demand. Sounds about right.

Cobra's picture

When that happens, they be like: "OH SNAP!!!!"

NoDebt's picture

It already happened.  Remember last year California's EBT card system went down for 4 hours.  There were already fights breaking out in the stores and cops being called.

In 4 hours.

Imagine 4 days.  Or 4 Months.  Cities will be burned to the ground and roving gangs will prowl the burbs in 'Mad Max' cars. 

silverserfer's picture

dont forget those horendous loin cloths

Panafrican Funktron Robot's picture

I'm 100% with you on that, it's like what the other guy said "things will change when there are ethical people on Capital Hill".  Really wish some of our fellow ZH'ers here would stop living in these fantasy scenarios where there is any political fix to this.  Nominal gains can be engineered to infinity, and your "liberty" and "freedom" can be supressed (through a number of means) as much as it needs to be in order to make you at least pretend to enjoy your shit sandwich.  Even with the moves by other countries to continue to deteriorate the petrodollar, it's important to keep in the back of your head that the continued managed decline can go on until, as Laws is saying here, enough people can no longer get food and entertainment.  We're in the "bread and circuses" stage of the decline.  The Romans ran this stage for 100 years before they went to autocratic emporer phase.

Milestones's picture

Disagree.The Romans and horses and oxen amoung other asesets---and maybe 70 Million. We have no gasoline and 7 Billion people  Huge difference in situations. 

The Romans ran for 100 years, we would not last 2 years.                Milestones

Wild tree's picture

True that Milestones,

Clickity-clack, clickity-clack rolls the train down the track,

Faster, faster straight down the hill,

Ben is berift of sight,

As the train wreck begins to build.

Jump now; and roll before the hit,

Ben will be first to hit the click.

Clickity-clack, clickity-clack rolls the train down the track.

Watch your back, true that.

Forgiven's picture


slaughterer's picture

OT, but I cannot believe anyone would want to stay long overnight with all of the Euro CPIs and GDPs coming out tomorrow and Wed.

Panafrican Funktron Robot's picture

3.5 billion in POMO tomorrow.  Pretty sure the overnight longs are gonna be fine.  

francis_sawyer's picture

cheesepopebux will be printed to infinity... [but it STILL won't be enough to hold the 'Potemkin Village Idiots', who count on them, together in unison]...

Al Gorerhythm's picture

It's like I'm conversing with someone channeling Tiny Tim when I bring this subject up, no matter who it is.

DeadFred's picture

"The system isn't so fragile, 9/11 was a shock and the market came right back"

"Sure the trading machines cause flash crashes but they always come right back"

"Sure copper prices are dropping but that only means construction is declining. The DOW is doing just fine"

These are responses the Tiny Tim channelers have given me recently.

We'll know who is correct soon enough

HedgeHammer's picture

Just look at what we pay in just interest payments on the national debt and tell me with a straight face that you have or have had an exit strategy all along. What a joke. It just isn't funny anymore


fonzannoon's picture

I just had someone tell me that you have to buy today because the last 17 tuesdays were positive. He is an incredibly dumb person, and yet he is probably right.

Panafrican Funktron Robot's picture

3.5 billion in POMO tomorrow.  He probably isn't aware of this, but he's right anyways.  

slightlyskeptical's picture

I was thinking the same thing. I didn't buy because I am an incredibly stupid person.

Northeaster's picture

"The theory all along has been that this $85 a month would seep down to Main Street to provoke spending (increasing the “velocity of money) and therefore “jump start” the economy."

Well we know how that theory worked, unfortunately we're about 0.001% of the population that does. Not to mention most Americans have no idea what The Fed does, is, or that they are unelected officials wielding extraordinary power.

Hubbs's picture

No MO Po mo is just micronathia jawboning by the FED trying to squeeze the last bit of credibility out of its money printing orgy but without setting off an uncontrolled chain reaction/meltdown.  Like the wicked witch said..."These things have to be done delicately!"

the not so mighty maximiza's picture

Without a POMO we will all get soft-ons

resurger's picture

In case if you guys forgot

"No Plan B"

There will be QE


LMAO's picture

 It’s all a crock of shite,


The Fed isn't managing either economy or employment. The Feds’ primary objective is trying to manage consensus and expectations. In the real world actions speak louder than words; in the FED world MOAR words MUST speak louder than actions.

There is no plan B simply because there are no exits from plan A which basically is Ctrl+P in a variety of levels and forms.


oddjob's picture

Sequestration was good for a gain of few hundred thousand jobs, cutting off POMO should bump that number to at least +400k.

Zen Bernanke's picture

Negative breadth, negative ticks, no volume and a rising vix:   anyone want to bet against ES making a new high on the close today?    

americanspirit's picture

POMO becomes TOMO on the way to NOMO

LoneStarHog's picture

OMG! Are you telling me that there has been MANIPULATION? ... Nooooo! ... MillionDollarBonus, say it ain't so!

yogibear's picture

And that nice steak that used to be $5.99/lb is now about $10/lb. See the magic of inflation.

The glogalist at the UN want people elsewhere to start eating insects.

Is that Bubble Bernanke and the Fed's plan when inflation gets out of control?

Lloyd Blankfein, Jamie Dimon and the rest of the Fed members can telll the muppets to start eating insects when food is unaffordable.