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.

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 05/13/2013 - 15:31 | 3557390 Jekyll_n_Hyde_Island
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.

Mon, 05/13/2013 - 15:34 | 3557412 flacon
flacon's picture

FED IS NOW OBSOLETE: $GOOG Google can now predict the stock market "http://www.nbcbayarea.com/blogs/press-here/Google-Can-Predict--205175951.html"

 

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!

Mon, 05/13/2013 - 15:34 | 3557421 LawsofPhysics
LawsofPhysics's picture

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

http://3.bp.blogspot.com/_pCDyiFUv9XU/S_HzX0bUJZI/AAAAAAAAJxA/UtOGAm5DPP...

 

Mon, 05/13/2013 - 15:34 | 3557424 That Peak Oil Guy
That Peak Oil Guy's picture

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

Mon, 05/13/2013 - 15:43 | 3557454 LawsofPhysics
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...

Mon, 05/13/2013 - 15:44 | 3557488 Precious
Precious's picture

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

Mon, 05/13/2013 - 17:14 | 3557955 Al Gorerhythm
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.

Mon, 05/13/2013 - 17:40 | 3558088 LawsofPhysics
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).

Mon, 05/13/2013 - 15:40 | 3557462 flacon
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... 

Mon, 05/13/2013 - 17:00 | 3557900 DavidC
DavidC's picture

flacon,
That made me laugh, thanks!

DavidC

Mon, 05/13/2013 - 15:40 | 3557463 SillySalesmanQu...
SillySalesmanQuestion's picture

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

Mon, 05/13/2013 - 17:33 | 3558050 asteroids
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.

Mon, 05/13/2013 - 15:36 | 3557431 LawsofPhysics
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.

Mon, 05/13/2013 - 20:11 | 3558634 Totentänzerlied
Totentänzerlied's picture

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

Mon, 05/13/2013 - 15:37 | 3557422 James_Cole
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. 

Mon, 05/13/2013 - 19:44 | 3558550 Buck Johnson
Buck Johnson's picture

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

Mon, 05/13/2013 - 15:25 | 3557391 LawsofPhysics
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.

Mon, 05/13/2013 - 15:43 | 3557482 kito
kito's picture

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

Mon, 05/13/2013 - 15:48 | 3557501 LawsofPhysics
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.

Mon, 05/13/2013 - 16:05 | 3557626 Herd Redirectio...
Herd Redirection Committee's picture

Indeed, a person can rationalize anything to themself.

Mon, 05/13/2013 - 16:18 | 3557704 kito
kito's picture

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

Mon, 05/13/2013 - 16:52 | 3557868 GeezerGeek
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.

Mon, 05/13/2013 - 20:16 | 3558648 Totentänzerlied
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.

Mon, 05/13/2013 - 15:52 | 3557546 Cobra
Cobra's picture

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

Mon, 05/13/2013 - 16:37 | 3557787 NoDebt
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. 

Mon, 05/13/2013 - 16:41 | 3557800 silverserfer
silverserfer's picture

dont forget those horendous loin cloths

Mon, 05/13/2013 - 16:08 | 3557635 Panafrican Funk...
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.

Mon, 05/13/2013 - 16:48 | 3557851 Milestones
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

Mon, 05/13/2013 - 19:20 | 3558486 Wild tree
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.

Mon, 05/13/2013 - 15:27 | 3557397 Forgiven
Forgiven's picture

No Moar POMO BITCHEZ

Mon, 05/13/2013 - 15:28 | 3557400 slaughterer
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.

Mon, 05/13/2013 - 16:10 | 3557650 Panafrican Funk...
Panafrican Funktron Robot's picture

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

Mon, 05/13/2013 - 15:30 | 3557401 francis_sawyer
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]...

Mon, 05/13/2013 - 15:31 | 3557408 Al Gorerhythm
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.

Mon, 05/13/2013 - 15:47 | 3557510 DeadFred
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

Mon, 05/13/2013 - 15:32 | 3557415 HedgeHammer
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

 

Mon, 05/13/2013 - 15:33 | 3557416 HedgeHammer
HedgeHammer's picture

double post

 

Mon, 05/13/2013 - 15:33 | 3557417 fonzannoon
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.

Mon, 05/13/2013 - 16:12 | 3557665 Panafrican Funk...
Panafrican Funktron Robot's picture

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

Mon, 05/13/2013 - 16:17 | 3557700 slightlyskeptical
slightlyskeptical's picture

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

Mon, 05/13/2013 - 15:34 | 3557423 Northeaster
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."

http://research.stlouisfed.org/fred2/series/M2V/

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.

Mon, 05/13/2013 - 15:36 | 3557434 Hubbs
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!"

Mon, 05/13/2013 - 15:37 | 3557444 the not so migh...
the not so mighty maximiza's picture

Without a POMO we will all get soft-ons

Mon, 05/13/2013 - 15:37 | 3557447 resurger
resurger's picture

In case if you guys forgot

"No Plan B"

There will be QE

"forever"

Mon, 05/13/2013 - 15:44 | 3557448 LMAO
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.

 

Mon, 05/13/2013 - 15:38 | 3557449 oddjob
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.

Mon, 05/13/2013 - 15:39 | 3557453 Zen Bernanke
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?    

Mon, 05/13/2013 - 15:42 | 3557474 americanspirit
americanspirit's picture

POMO becomes TOMO on the way to NOMO

Mon, 05/13/2013 - 15:43 | 3557477 LoneStarHog
LoneStarHog's picture

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

Mon, 05/13/2013 - 15:46 | 3557481 yogibear
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.

http://www.zerohedge.com/news/2013-05-13/fight-world-hunger-eat-insects-un-recommends

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.

 

 

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