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Dudley Terrified By "Over-Reaction" To QE End, Says Fed Could Do "More Or Less" QE

Tyler Durden's picture


Up until today, the narrative was one trying to explain how a soaring dollar was bullish for stocks. Until moments ago, when Bill Dudley spoke and managed to send not only the dollar lower, but the Dow Jones to a new high of 15,400 with the following soundbites.


Here is a funny one:


Read "up." And the punchline:


Translated: the Fed will never do anything that could send stocks lower - like end QE - ever again, but for those confused here is a simpler translation: Moar.

Full Dudley speech:

Lessons at the Zero Bound: The Japanese and U.S. Experience

Remarks at the Japan Society, New York City

As prepared for delivery

It is a pleasure to have the opportunity to speak today at the Japan Society.1   Our countries have very close relations and this is particularly true at the central banker level.  I just got back from the BIS last week where I had a chance to spend some time with Governor Kuroda. 

Today, I will discuss the challenge that we both have been working to solve—how best to conduct monetary policy when short-term interest rates are already pinned close to zero, but the economy is still operating well below its potential.   This has required considerable learning.  After all, until Japan’s experience began in the 1990s, no major country had actually faced this problem since the Great Depression of the 1930s.

As the first nation to experience the zero bound in modern times, Japan was an early pioneer in developing unconventional tools and strategies.  Its experiences, both good and bad, along with lessons from other periods such as the Great Depression, have helped to inform the policies adopted by the United States (U.S.) and other nations in recent years.  The evolution of policy in Japan, in turn, has been informed, in part, by the experience of the U.S. and other nations.

So what have we learned to date?  Let me highlight six key points.

First, and most importantly, managing expectations is critical in the execution of monetary policy at the zero bound.  This includes expectations about the central bank’s objectives for inflation and the economy, and expectations about how the central bank will use its tools in the future to achieve these goals.

Second, in managing expectations, good communication is essential.  Expectations will not be well anchored when communications are muddled or inconsistent, or when a central bank acts in ways that are not consistent with its guidance.

Third, actions speak louder than words alone.  Thus, there is an important role for asset purchases that ease financial conditions to support growth and keep inflation expectations well anchored.

Fourth, the policy instruments interact so that policy as a whole exceeds the sum of its parts.

Fifth, at the zero lower bound, risk management becomes extremely important.  In particular, because the costs of getting stuck in a liquidity trap with chronic deflation are high, a central bank should put substantial weight on avoiding this outcome. 

Sixth, the constraints imposed by the zero bound limit what monetary policy can accomplish by itself.  This increases the importance of complementary fiscal, financial, and structural policy actions.  Credible fiscal policies, actions to ensure a healthy financial system, and structural reforms that lift the potential for growth are very important.

As always, what I will say here today represents my own views and not necessarily those of the Federal Open Market Committee (FOMC, Committee) or the Federal Reserve System.

Review of the experience in Japan and the United States

Let me start by briefly reviewing the experience of Japan and the United States.  As you all know, Japan’s rapid economic ascent and investment boom came to an abrupt halt in the early 1990s with the bursting of a gigantic bubble in equities and real estate.

Asset price deflation resulted in a huge decline in wealth.  This led to a sharp fall in demand, a balance sheet squeeze for both businesses and households, and a large increase in problem loans for Japanese financial intermediaries.  By some measures—such as the loss of wealth relative to the size of the economy—this was a bigger shock than the U.S. experienced in 2008.  Growth slowed sharply and inflation fell.

The Bank of Japan (BoJ) responded by reducing overnight interest rates from a peak of more than 8 percent in early 1991 to ½ a percent by the fall of 1995.2   Most studies of this period suggest that policy was generally appropriate given economic forecasts at the time, but too tight relative to the actual outcomes.3  Economic forecasts for Japan—both by the official community and by private sector agents—were consistently more optimistic than the actual outturns.   It is noteworthy that as late as January 1995—on the eve of deflation—10-year Japanese Government Bond (JGB) yields were still at 4.7 percent.

With the benefit of hindsight, we now understand that the disinflationary consequences of the asset price bust and financial stress where vastly more powerful than was widely realized at the time.  As we later saw in the U.S., the forces of contraction and disinflation operated through many different channels—not just directly on household wealth, for example, but also through the impact of the asset price bust on the health of financial intermediaries and the supply of credit to households and businesses.

Over time, the Japanese banking system came under mounting stress.  This was a slow-motion crisis, as the assets were mainly loans that were not marked-to-market.   Accounting practices and regulatory forbearance allowed banks to delay charging off bad loans and recapitalizing at the cost of impairing the availability of credit to new potential borrowers.   A full-blown banking crisis finally materialized in 1997.  Although some banks were recapitalized in 1999, the full regulatory response took several more years.

The monetary and fiscal stimulus that was provided helped Japan avoid a deep recession.  But expectations about future nominal income growth for both households and businesses ground lower over time.  With inflation expectations sinking, inflation-adjusted real interest rates rose, and Japan became mired in deflation.

While deflation is ultimately a monetary phenomenon, structural elements were also important.  Long-term demographic factors added to the deflationary pressures and structural rigidities, and credit supply problems constrained the reallocation of resources to growth sectors.  These structural factors made it substantially more difficult to escape the deflation trap. 

The Bank of Japan was active during this period.   From the late 1990s onwards, it pioneered an extremely broad array of innovative tools—many of which were later adopted, in amended form, by the Fed and other major central banks.  These included forward guidance on the future path of the policy rate, quantitative easing through purchases of government securities and private assets including asset-backed securities, equities and real estate investment trusts (REITs), a more quantitative inflation objective, and funding for bank lending.

From my perspective, Japan’s experience with forward guidance for the policy rate, asset purchases  and a more formal inflation goal are particularly instructive, as this helped inform the later use of such tools in the United States.

In early 1999, the Bank of Japan said it would maintain its zero interest rate policy until “deflationary concerns” were “dispelled.”   This commitment was lifted in August 2000, and the BoJ raised the policy rate by a quarter-point.   However, the BoJ was subsequently obliged to reverse course, and reintroduced forward guidance in March 2001.  This guidance was tied to the realization of a new inflation objective.

With deflation intensifying, the Bank of Japan embarked on a quantitative easing (QE) program in 2001 designed to increase the size of the monetary base.  The Bank of Japan engaged in purchases of JGBs that were large in scale, but confined to short-dated maturities.  This reflected a view that such purchases primarily acted through the liabilities side of the central bank's balance sheet—pushing up the amount of reserves in the banking system.  Because the growth of the monetary base was deemed the goal of policy, it was logical to purchase short-dated assets, which could be allowed to run off once a sustainable recovery was in place.

The downside of this approach was that the purchases did not change the composition of the private sector’s balance sheet very much because the policy essentially resulted in the exchange of one short-term risk-free asset for another.  As a consequence, the purchases had only modest direct effects on financial conditions.4

Starting in 2006, when the initial wave of QE ended, the BoJ began to formalize its inflation goal in numerical terms. This was initially expressed as an “understanding of medium- to long-term price stability” based on individual policymakers’ views. The inflation objective went through several iterations before being defined in 2012 as a Committee “goal” of a positive range of 2 percent or lower, with a lower interim goal of 1 percent.

Following the onset of the global financial crisis in 2007-2008, Japan resumed QE, and gradually tightened the link between its policy actions and its objectives.  By January 2012, the BoJ had committed to keep rates at the zero bound and to continue purchasing assets until the 1 percent goal was “in sight.”

Several prominent Japanese experts have argued that there was a “start-stop” aspect to monetary policy during the 1990s and 2000s with reversals in policy beginning before deflationary expectations were eliminated.5   Fiscal policy also reversed abruptly on several occasions before economic recovery was firmly established.  While Japan did enjoy a period of respectable real per capita growth in the mid-2000s, escape from deflation proved elusive.

More than a decade after Japan’s bubble burst, the U.S. housing bubble burst.  This exposed extensive vulnerabilities in our financial system and triggered a global financial crisis.6 Unlike Japan, we had the advantage of being able to learn from another nation’s recent experience.  We applied what we understood to be the lessons from Japan, though with hindsight, perhaps not in every respect as completely as we could have.

In particular, Japan’s experience reinforced the lessons of the Great Depression here in the U.S. and made us sensitive to the disinflationary force of an asset price bust and financial crisis. We recognized that we had to be very aggressive to prevent deflation and deflation expectations from becoming well entrenched.

The Federal Reserve reduced short-term interest rates to nearly zero by late 2008—a little over a year and a half after the initial shock hit in August 2007.   Immediately upon reaching the zero bound, we provided additional stimulus by expanding our balance sheet and deploying forward guidance on the policy rate. These actions, in the context of a strong commitment to both our inflation and employment mandates, succeeded in preventing deflation expectations from taking hold, even though real outcomes were disappointing.  We also took steps to formalize our 2 percent inflation objective.7

The Fed’s large-scale asset purchase programs differed from those originally undertaken in Japan both in theory and in practice.  They were concentrated in longer-term securities—Treasuries and agency mortgage-backed securities.  This reflected a different perspective on how purchases affect financial conditions and the economy, as well as the different structure of our financial system.

Our view is that asset purchases work primarily through the asset side of the balance sheet by transferring duration risk from the private sector to the central bank’s balance sheet.  This pushes down risk premia, and prompts private sector investors to move into riskier assets.  As a result, financial market conditions ease, supporting wealth and aggregate demand.  The fact that such purchases increase the amount of reserves in the banking system and the size of the monetary base is a byproduct—not the goal—of these actions.

The U.S. also moved relatively quickly to recapitalize core financial institutions—partly as a result of good judgment, but also because the intense pressures of a capital markets-based financial system forced us to confront these issues. The Supervisory Capital Assessment Program (SCAP) in early 2009 identified and addressed the potential capital shortfalls of the major U.S. bank holding companies in a stressed scenario.  The SCAP forced the banks to recapitalize either through the use of private funds or the injection of government convertible preferred equity from the TARP program.

However, our policy approach was far from perfect.  Comparing actual growth to the growth projections by FOMC participants in the Summary of Economic Projections shows that we were consistently too optimistic about growth over the 2009-2012 period.  As a result, with the benefit of hindsight, we did not provide enough stimulus.  Perhaps, if we had paid more attention to the persistent divergence between growth forecasts and outturns in Japan in the 1990s, we might have been more skeptical about the prospects for a strong economic recovery, even with a more aggressive monetary policy regime.  

Also, we could have done better in communicating our intentions and goals.  We put too much emphasis, too early, on the exit.  At an earlier stage, we should have put greater emphasis on our commitment to use all our tools to the fullest extent possible for as long as needed to achieve our dual mandate objectives.

Our policies also had a “start-stop” aspect to them that may have undercut their effectiveness.  For example, until September 2012, our large-scale asset programs generally specified the total size of the program, with a purchase rate and an expected ending date.  This created a void when the programs ended and made our policy response sporadic and hard to forecast.  This limited the scope for market prices to adjust in anticipation of our future actions in ways that would help stabilize the economy.

Another shortcoming was in our use of forward guidance with respect to the path of short-term interest rates.  Although calendar-based guidance worked reasonably well in influencing expectations about the future path of short-term rates and thus the shape of the yield curve, it was clumsy in a number of respects.  For example, if we moved the forward date guidance out in time, did this reflect a change in our reaction function, the amount of desired policy stimulus or greater pessimism about the outlook? 

Of course, as we have learned, we have acted to rectify these shortcomings.  For example, our asset purchases are now outcome based, tied to the goal of substantial improvement in the labor market outlook, and our forward guidance on short-term rates is tied to unemployment and inflation thresholds rather than to a calendar date.

The Japanese authorities have also capitalized on our joint experiences and actions.  Thus, we have witnessed a convergence in the monetary policy regimes of our two countries.

Today, the two regimes are quite similar in three important respects.  Both the Fed and the Bank of Japan place considerable emphasis on an explicit inflation objective, commit the central bank to use all available tools to achieve its objectives, and use forward guidance on interest rates and large scale purchases of long duration assets as the main tools to achieve these objectives.  

Although there are still some important distinctions in how policy is conducted, much of these relate more to differences in legal frameworks and the current starting point for economic activity and inflation rather than fundamental differences in philosophy.  For example, the BoJ’s asset purchases are broader than the Fed’s, extending to equity ETFs (Exchange Traded Funds) and REITs.  This option is not available to the Federal Reserve because the Federal Reserve Act sets tighter limits as to the types of assets that the Federal Reserve can purchase.

Similarly, current circumstances in the two countries are different, with deflationary expectations still in the process of being dislodged in Japan.  The BoJ needs to push up inflation expectations, whereas in the U.S. the current level of inflation expectations is consistent with the long-term objective of the Fed. Therefore, the BoJ, relative to the respective sizes of the two economies, has adopted a purchase program that is more aggressive that the U.S. program.  This is true whether measured in terms of the amount of duration being pulled out of the market or purchases as a share of total issuance.

Lessons learned

As I mentioned earlier, there have been at least six major areas where there has been significant learning, which has influenced the evolution of policy.  Let me turn to them.

The importance of managing expectations

Managing expectations is always central to monetary policy.  However, at the zero bound this is even more critical than usual.

There are two aspects of this.   First, keeping inflation expectations anchored at levels consistent with the central bank’s medium-term inflation objective—2 percent on the personal consumption expenditures deflator in our case—is vitally important. Once deflation expectations become well entrenched, it is very difficult to change them.  And, because inflationary expectations are an important driver of actual inflation outcomes, deflationary expectations can be self-fulfilling in driving actual deflation outcomes.  Also, if inflation expectations were allowed to fall, this would raise the level of expected real interest rates, making monetary policy less accommodative.

Conversely, a central bank does not want medium-term inflation expectations to climb above levels consistent with its inflation objective.  If inflation expectations were to become unanchored to the upside, that could damage credibility and result in higher risk premia for financial assets and tighter financial market conditions.  Thus, a policy that maintains medium-term inflation expectations in line with our inflation objective is most consistent with our mandate.8

Second, at the zero bound, the ability to provide credible forward guidance—both in terms of the future path of the policy rate and the future path of the balance sheet— becomes the predominant vehicle by which a central bank’s actions affect financial market conditions.  If this expectations channel did not work, then it would be very difficult to provide additional monetary accommodation because short-term rates cannot be reduced materially.

In the U.S., in recent months we have communicated that short-term rates are likely to stay very low for a long time; our balance sheet is likely to increase further in size and then stay large for a long time; and that we will not be overly hasty in tightening monetary policy once the recovery gets well established.  By doing this, we are influencing expectations about the likely future path of short-term rates and the interest rate term premium.  By utilizing the expectations channel in this way, we have been able to make policy more accommodative and generate easier financial market conditions. 

Good communication is essential

To manage expectations well, both credibility and good communication is essential.  This means explaining clearly the policy framework, the relationship between the use of tools and the central bank’s mandated objectives at the zero bound, and how the use of these tools will evolve with changes in the outlook.

In this regard, a central bank’s credibility is crucial.  Only if a central bank does what it promises to do will expectations be solidly anchored.  Of course, this does not mean mechanically following a set policy trajectory regardless of how the outlook changes, but it does mean that the stance of policy over time must evolve in ways consistent with the criteria established in the guidance.

It is important to communicate how policy will respond to changing economic circumstances over time.  This is particularly important when the outlook changes, because expectations about how policy will respond can be an important self-stabilizing element of monetary policy.   In this regard, a framework that ties the use of policy tools explicitly to economic outcomes has many advantages.

Good public communication is also important.   For example, press conferences offer an opportunity to ground the policy actions and stance in a framework that is explicit about how the central bank plans to achieve its mandated objectives.

Asset purchases are an effective tool

Credibility requires taking action in the present as well as providing guidance for the future, and we are fortunate to have learned that asset purchases can indeed be an effective tool to support growth, employment and inflation expectations at the zero bound. While I believe that managing expectations is crucial, I am somewhat skeptical of the view that forward guidance on the policy rate alone is sufficient in these circumstances.  This is particularly the case when guidance extends out several years in the future.  Promises about future actions may be seen as not fully credible given the potential for changes in a central bank’s leadership and policy committee and the degree of uncertainty about economic conditions that will prevail far out in the future. 

In recent years, we have developed considerable positive experience providing accommodation through changes in the size and composition of the central bank balance sheet.  Taking interest rate risk and mortgage prepayment risk out of private hands has proven to be effective in easing financial conditions, increasing wealth and lowering private sector borrowing costs.9   The impact of purchases may be attenuated to some degree by deleveraging and ongoing adjustments in markets such as real estate. But it is material even in these circumstances, and builds over time as these needed adjustments proceed.

The sum is greater than its parts                                           

Another important insight is that each of the components of policy—the current stance in terms of the policy rate and the balance sheet, expectations about the future stance, the degree of commitment to future policy, and the clarity of communications—all interact.  Our tools are more powerful used in combination, and, when their use is explicitly tied to the outcomes we seek to achieve.  As a result, the sum is more powerful than the component parts.

Risk management is particularly important

Risk management is particularly important at the zero bound. At the zero lower bound, once you are caught in deflation, it is very hard to get out.  Thus, policymakers need to put considerable weight on this risk and conduct monetary policy with sufficient aggressiveness to ensure that they avoid such an outcome.

It is also true that we have less experience with the monetary policy tools used at the zero bound.  As a result, there is greater uncertainty around the efficacy and costs of these tools.   This pushes in the opposite direction of being more cautious.

This means that risk management is essential—what are the costs of being wrong in either direction?  Sometimes a cautious, incremental approach may not always be the right strategy.

Limits to monetary policy

At the zero bound, monetary policy encounters additional constraints.  These fall into three broad buckets.

First, there are costs associated with non-conventional tools.  This means they cannot simply be used without limit, though the appropriate limit will vary based on the outlook and balance of risks.   The most obvious example of this is our large-scale asset purchase program.  As the balance sheet increases in size, the potential costs increase in terms of market functioning, risks to financial stability, and the path of future remittances to the U.S. Treasury.

Second, there is a limit on how far the expectations channel can be exploited.  As I discussed earlier, since the current FOMC cannot bind future FOMCs and the economic outlook is highly uncertain, it isn’t reasonable to expect that policies that affect expectations many years in the future will have a powerful impact today.  I believe that the effectiveness of the expectations channel decays as the length of the horizon extends.

Third, monetary policy is only one leg of the stool necessary to generate a vibrant and sustained economic expansion.  In particular, as noted earlier, the health of the financial system is critical.  For without it, the monetary transmission channels will be impaired and monetary policy will be less effective in influencing the cost and availability of credit. Similarly, it is critical that fiscal policy be set appropriately.  This means the short-term impulse needs to be properly calibrated to the current set of economic circumstances (not too much restraint) and the long-run budget trajectory needs to credible and consistent with fiscal sustainability.  Finally, removing structural impediments that hinder growth and economic rebalancing are also important.  In the case of the U.S., this could include changes in immigration policy, infrastructure investments that remove bottlenecks and job training programs that improve the quality of human capital.   

Implications for U.S. monetary policy

Undoubtedly, we will continue to learn as we seek to implement monetary policy most effectively.

Let me give a few examples of how my own thinking may evolve.  In terms of our asset purchase program, I believe we should be prepared to adjust the total amount of purchases to that needed to deliver a substantial improvement in the labor market outlook in the context of price stability.  In doing this, we might adjust the pace of purchases up or down as the labor market and inflation outlook changes in a material way. For me, the base case forecast is not the sole consideration—how confident we are about that outcome is also important. 

Because the outlook is uncertain, I cannot be sure which way—up or down—the next change will be.  But at some point, I expect to see sufficient evidence to make me more confident about the prospect for substantial improvement in the labor market outlook. At that time, in my view, it will be appropriate to reduce the pace at which we are adding accommodation through asset purchases.  Over the coming months, how well the economy fights its way through the significant fiscal drag currently in force will be an important aspect of this judgment.

We are also learning about how best to prepare for the eventual normalization of monetary policy. For example, we may need to update our thinking with respect to the so-called exit principles that we published in June 2011 in order to bring them up to date with developments since then, and ensure they do not unnecessarily constrain our ability to conduct policy in the most effective way  today.

Those exit principles stated that we would first stop reinvesting, then raise short-term interest rates, and finally sell agency mortgage backed securities over a three-to-five year period. This seems stale in several respects.  In particular, how does one time the end of reinvestment given that we now have economic thresholds that govern the timing of liftoff?  Also, the thresholds are thresholds, not triggers.  Thus it is hard to link the timing of the end of reinvestment to the unknown liftoff date for short-term rates.

More broadly, it may be desirable to update our thinking around the path and composition of the balance sheet over time, in light of our capacity to shape this path in a way that mitigates potential costs and risks. For example, the agency MBS portfolio is substantially larger today than it was when the original exit principles were devised. To the extent that the Committee wants to reduce the risk of disrupting market functioning during normalization, it could decide to indicate that it will avoid selling the MBS portfolio during the early stages of the normalization process.  Moreover, to the extent that the Committee wants to mitigate the risk of a sharp increase in long-term rates, it could judge that it would prefer not to commit to agency MBS sales. Expectations about future MBS sales or actual sales have the potential to generate or amplify such an upward spike in long-term rates.  If the Committee believes that it could be costly in terms of credibility to incur a period of no remittances to Treasury—a notion I am personally somewhat skeptical about—avoiding MBS sales would also reduce this risk.  Indeed, the Committee might conclude that it was better on all three counts to allow the agency MBS securities to run off passively over time.10

An important challenge for us will be to think carefully about what combination of actions and communications will best ensure that when we do eventually judge that it is appropriate to begin normalizing policy, the initial tightening of financial market conditions is commensurate to what we desire. There is a risk is that market participants could overreact to any move in the process of normalizationIndeed, there is some risk that market participants could overreact even before normalization begins, when the pace of purchases is adjusted but the level of accommodation is still increasing month by month.11 Not only could such responses threaten financial stability, but also they might make it harder to calibrate monetary policy appropriately to the economic situation. We will need to think long and hard about how best to develop policy in a way that enables us to respond flexibly to a changing economic outlook, but in a way that is not disruptive to the economy.12

Based on what we have learned to date at the zero bound, I believe that it will be important for us to anchor all our communication around the core principle: The path of the policy rate and the size and composition of the balance sheet over time will be driven by our unbending commitment to our dual mandate objectives of maximum sustainable employment in the context of price stability. [ZH: also known as sending the S&P500 and the Russell 2000 to new daily highs every day until the end]

As you can see, there will be much more to learn as we go.  Thank you for your kind attention.  I would be happy to take a few questions.


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Tue, 05/21/2013 - 13:14 | 3584511 LawsofPhysics
LawsofPhysics's picture

But who will fund the sovereign debt of the U.S.?  Tick tock motherfuckers...

Tue, 05/21/2013 - 13:16 | 3584519 i-dog
i-dog's picture

Colour me 'shocked'.

Tue, 05/21/2013 - 13:17 | 3584529 EnglishMajor
EnglishMajor's picture

Looks like I picked the wrong week to quit sniffing glue.

Tue, 05/21/2013 - 13:24 | 3584552 dontgoforit
dontgoforit's picture

Meeee tooo - damn that was long-winded and when finished I wondered if I actually mined any nuggets....I think not.  Japan & U.S. very alike was about all there was.  Both screwed down by debt and getting worse all the time.  Did I get it right?

Tue, 05/21/2013 - 13:29 | 3584560 nope-1004
nope-1004's picture

FOMC = archaic

These statements are nothing more than differing views on how that plug should be pulled, when the time comes.  We are witnessing the fall of an empire in real time, and the fact that this "free market" so called "capitalist" economy needs to talk about QE to begin with shows the level of failure of this economic expriment.  This pig is going down boyz and girlz.

Fuck Dudley.  What he says means shit.  This system is mere months away from implosion.



Tue, 05/21/2013 - 13:30 | 3584585 lasvegaspersona
lasvegaspersona's picture

This system is mere months away from implosion.

This system is mere days away from implosion. time review your work so I don't have to correct it for you...

Tue, 05/21/2013 - 13:33 | 3584598 nope-1004
nope-1004's picture

In 2009 I thought the same.  Just a few more days.......

They've kept this dysfunctional pig alive longer than anticipated and I'm sure they will do it for a while yet.  Go ahead and correct my work, as long as you agree with the conclusion......

Tue, 05/21/2013 - 13:36 | 3584613 LawsofPhysics
LawsofPhysics's picture

Japan has been doing it for 30+ years for fucks sake.

Tue, 05/21/2013 - 13:37 | 3584618 fonzannoon
fonzannoon's picture

I see the market up today and I see this guy Dudley admitting pretty outwardly that he has long since past the point where he has any fucking clue what has happened, why it has happened, and what will happen from here. That is all I need to know.

Tue, 05/21/2013 - 14:22 | 3584820 DavidC
DavidC's picture

Spot on. These guys are absolutely PETRIFIED. They KNOW they've blown another bubble (or three if you agree with Paul Craig Roberts) and they don't know what to do.

Rather than trying to manage it all they're doing is blowing it even further, so that when the fall happens (and it will) it will make 2008 look like a picnic.



Tue, 05/21/2013 - 14:24 | 3584836 DavidC
DavidC's picture

Sorry, I mean fuckwits.


Tue, 05/21/2013 - 16:01 | 3585225 Jack Napier
Jack Napier's picture

Just because these guys are full of shatner doesn't mean they don't have a clue. They know exactly what they are doing. Wealth transfer and class warfare has been the plan all along. You don't get to where we are without careful calculations. The next system that comes to replace this one will be even more oppresive, and the masses will cheer for it just like they did for the Federal Reserve.

Tue, 05/21/2013 - 14:26 | 3584844 fonzannoon
fonzannoon's picture

IMO they are purposely trying to keep everyone confused and hope that confusion keeps people from bailing en masse. You don't want to bail if they end up expanding. so what to do? Just stay put.

Tue, 05/21/2013 - 13:39 | 3584623 King_of_simpletons
King_of_simpletons's picture

......And they try to convince us EVERYDAY that we are not in a BUBBLE

Tue, 05/21/2013 - 13:42 | 3584636 SheepDog-One
SheepDog-One's picture

Right, just the fact that they're even talking about QE at all, much less as the basis for the entire economy/financial system proves it's all utterly insane and that there's no way out at all...the collapse will be utter devastation down to the currency itself becoming completely worthless overnite.

Tue, 05/21/2013 - 14:01 | 3584705 Chief Falling Knife
Chief Falling Knife's picture

I agree, it's insane.

When he states this:

Indeed, there is some risk that market participants could overreact even before normalization begins, when the pace of purchases is adjusted but the level of accommodation is still increasing month by month.11 Not only could such responses threaten financial stability, but also they might make it harder to calibrate monetary policy appropriately to the economic situation.

What he's saying is essentially, 'Normalization could threaten financial stability, so we have to remain abnormal.'

And yet I hear daily from just about every talking head out there, that we are in a recovery. 


Tue, 05/21/2013 - 14:06 | 3584728 SheepDog-One
SheepDog-One's picture

Dudley is basically laying this out as his 'escape clause'....hey we warned you!

Tue, 05/21/2013 - 14:35 | 3584881 Chief Falling Knife
Chief Falling Knife's picture

This whole thing is filled with gems.

He says here: 

We are also learning about how best to prepare for the eventual normalization of monetary policy. For example, we may need to update our thinking with respect to the so-called exit principles that we published in June 2011 in order to bring them up to date with developments since then, and ensure they do not unnecessarily constrain our ability to conduct policy in the most effective way  today.

Those exit principles stated that we would first stop reinvesting, then raise short-term interest rates, and finally sell agency mortgage backed securities over a three-to-five year period. This seems stale in several respects.

In other words, 'what we said 2 years ago is no longer valid.'  And I extrapolate that further to mean, that they'll continue on their current course, and probably give another analysis on their current thinking in another 2 years.

What you said was spot-on, in that these guys have no clue what they are doing nor even a rough estimate of the (damaging)effects they are causing in the financial markets.

Tue, 05/21/2013 - 14:55 | 3584967 tsx500
tsx500's picture

or maybe they DO have a clue what they're doing and DO have a rough estimate of the damaging effects they are causing ... ?!     signed, professors Cloward & Piven .  ps: FORWARD !

Tue, 05/21/2013 - 15:09 | 3585023 Chief Falling Knife
Chief Falling Knife's picture

Voice of contrarian reason, you may be right.  And by extension, essentially it's almost pointless to take anything they say/write in public seriously.

Even still, I get the feeling that while they may know where or how they want it to all end up, there is gonna be shit that happens along the way that they never foresaw. 

And if the road is in doubt, seems to me, so to is the destination.

Wed, 05/22/2013 - 05:37 | 3586904 auric1234
auric1234's picture

when the pace of purchases is adjusted but the level of accommodation is still increasing month by month

He's saying that the market could overreact when they decrease and increase printing pace at the same time? 

How do you increase and decrease something at the same time? I just don't get it

Tue, 05/21/2013 - 13:25 | 3584562 NotApplicable
NotApplicable's picture

Talk about spooking and scattering the herd!

This is nothing but an effort to stop everyone from front-running their POMOs (and any other applicable acronym).


Tue, 05/21/2013 - 13:40 | 3584629 Bay of Pigs
Bay of Pigs's picture

Leave it to the William Dudley to get the cattle running. Go figure.

This NYFED, BIS Bankster critter (i.e. fucking crook) needs to be arrested and jailed for crimes against humanity.

Tue, 05/21/2013 - 13:39 | 3584626 disabledvet
disabledvet's picture

Chairman speaks tomorrow and I don't have a billion dollars riding on every word. Had a game here of Kibuki Theater here many years ago...for those that are experienced in these here parts. Recall a serious ratings decline when things got "too obvious." had to change my call sign before I got allowed back in... one you all see now. We'll see if the Chairman feels himself in the same predicament tomorrow. I do agree "Kibuki theater over" but Banzai is the expert on that score. What's the term..."give it it's due."

Tue, 05/21/2013 - 13:50 | 3584674 PiltdownMan
PiltdownMan's picture

Dudley, you ignorant slut. Look at California house prices as  at this guys analysis. 

The banks are digging the massive rise in house prices in CA, NV, and AZ. It clears away. negative equity problems. But at a terrible cost.

Tue, 05/21/2013 - 14:20 | 3584811 Herd Redirectio...
Herd Redirection Committee's picture

Banks are the biggest 'owners' of residential RE in the country.

Tue, 05/21/2013 - 14:56 | 3584972 g speed
g speed's picture

and I'm happy for them--really I am

Tue, 05/21/2013 - 13:17 | 3584528 insanelysane
insanelysane's picture

I believe the proper term would be "tail chasing" and the solution will be to print 4 $1 trillion dollar bills.  let's make it 5 to be on the safe side.

Tue, 05/21/2013 - 13:20 | 3584536 slaughterer
slaughterer's picture

Can't we get Phil and Lisa Falcone, Steve Cohen, Jon Corzine, and Bernie Madoff on the Fed voting Committee?  We need people with integrity and vision.   

Tue, 05/21/2013 - 13:26 | 3584563 dariomilano
dariomilano's picture

learn from us, italians... we send that kind of people directly to the government

Tue, 05/21/2013 - 13:22 | 3584544 cougar_w
cougar_w's picture

The US will default on the debt by adopting a new currency at ten cents on the dollar.

Tue, 05/21/2013 - 13:27 | 3584557 LawsofPhysics
LawsofPhysics's picture

Okay, I'll bite, when?  Lots of people/institutions around the world hold dollar reserves, how won't such a move lead to WWIII?  Do tell...

Tue, 05/21/2013 - 13:33 | 3584601 dontgoforit
dontgoforit's picture

Heck, if that happened they'd probably go ahead and do WWIV and WWV while they were at it.

Tue, 05/21/2013 - 14:14 | 3584780 Diet Coke and F...
Diet Coke and Floozies's picture

Buy in bulk and save!

Tue, 05/21/2013 - 13:45 | 3584649 cougar_w
cougar_w's picture

The US will issue everyone IOUs at par per original dollar -- in 100 year Treasuries.

That's the can being kicked by a real pro.

If you don't like that deal, you take the ten cents on the dollar -- in new dollars. And anyone not taking global trade in new dollars is subject to regime change.

It's all about choice.

And if any of that starts WW3, so what? Who invades the US -- Canada? Mexico? We let China take SK and Japan is a consolation prize, Europe burns (la de da) and every other nation in the world falls off the edge of the earth not to be heard from again for 800 years if ever.

This is what happens when you go back 300 years. You really go back 3,000.

Tue, 05/21/2013 - 13:52 | 3584677 LawsofPhysics
LawsofPhysics's picture

In your scenario, without a global consensus, trade would simply stop overnight.  Your survival, regardless of social status, will be location dependent as every city on earth explodes in social unrest that will vary in direct proportion to the area's ability to produce potable water/food/electricity etc.  Okay fine, bring it!

Tue, 05/21/2013 - 14:22 | 3584821 Herd Redirectio...
Herd Redirection Committee's picture

Except for black market trade using precious metals, and other barter arrangements.

Tue, 05/21/2013 - 14:25 | 3584841 LawsofPhysics
LawsofPhysics's picture

Not quite, if an area has no fucking potable water, it has no potable water.  People seem to forget that "price" (even in a black market) is irrelevant if the item is not available.

Tue, 05/21/2013 - 15:31 | 3585104 Herd Redirectio...
Herd Redirection Committee's picture

You talkin' bout SoCal, Arizona, and Nevada?

Tue, 05/21/2013 - 15:42 | 3585142 Overfed
Overfed's picture

For starters.

Tue, 05/21/2013 - 13:28 | 3584574 kurzdump
kurzdump's picture

This would require a global consensus. Otherwise international trade would stop immediately resulting in chaos never seen before in the history of mankind. Trust me, there wont be a global consensus about that.

Tue, 05/21/2013 - 13:49 | 3584667 NotApplicable
NotApplicable's picture

Global consensus = Thermonuclear device pointed at you!

Tue, 05/21/2013 - 13:33 | 3584599 lasvegaspersona
lasvegaspersona's picture


I think it will be a clean break. That means zero cents on the dollar.

Why be tied to obligations to a failed currency? Everyone (all the grown ups anyway) have had a loooong time to get ready. If you don't own gold or something of value it will be your fault. I would not count on that 10 cents.

Tue, 05/21/2013 - 13:43 | 3584638 disabledvet
disabledvet's picture

Bite? "that's a lot of banana in your Republic."

Tue, 05/21/2013 - 14:28 | 3584855 gatorengineer
gatorengineer's picture

At least we wont have the TP problem the venezuelans have....

Tue, 05/21/2013 - 14:55 | 3584968 1C3-N1N3
1C3-N1N3's picture


The US will default on the debt by adopting a new currency at ten cents on the dollar.

Possibly in addition to the dollar. And why not? Who says the Fed needs to carry only one product?

"You got a license to use that dollar, son?"

Tue, 05/21/2013 - 13:23 | 3584548 sgt_doom
sgt_doom's picture

Bill Dudley?  Like who the bloody hell would give a giant rat's ass what that douchetard spews forth?

That's Bill Dudley of the Group of Thirty?

That "august body" where Martin "unregulated credit default swaps are grand" Feldstein is also a member (along with Larry Summers, Ernesto Zedillo --- the dood that the Mexican gov't recently attempted to extradite from Yale University, USA, and Krugman, Trichet of France and Mario Draghi, etc.).  The very same Martin "hey, I'm a director of AIG's Financial Products Division when they brought down the global economy" Feldstein?

The very same Martin "I'm a director at Eli Lilly when they were slapped with the largest criminal penalty in US history" Feldstein?

The very same Martin "I was a director at HCA when they were forced to pay the largest out-of-court settlement for Medicare/Medicaid fraud" Feldstein?

Oh, but it's OK, Marty is at Harvard (one of the three primary criminal factories in North America, along with Yale and Princeton)!

Tue, 05/21/2013 - 13:27 | 3584567 NotApplicable
NotApplicable's picture

Ignore the evildoers at your own peril.

Remember Sarge, without accurate situational awareness, you're nothing but dead meat.

Tue, 05/21/2013 - 13:29 | 3584576 yogibear
yogibear's picture

Jawboning by these guys will only last for so long. Dudley, Evans, Yellen and Bernanke all know their trapped buying US debt, otherwise their whole Ponzi scheme falls apart.

In fact they will probably increase QE as it takes more and more sustain the Ponzi.

Tue, 05/21/2013 - 13:36 | 3584616 dontgoforit
dontgoforit's picture

Is there no way this insanity can be stopped without blood?  They're going to fix it so we can't recover - any of us.  WTF are they REALLY up to?  Conspiracy theory is not my strong suit, but this sheeple is feeling fleeced more each day.

Tue, 05/21/2013 - 14:42 | 3584915 JR
JR's picture

You are being fleeced every day, along with most Americans. I believe we can end this without bloodshed because the economy is dying and the American people, who have tasted freedom, will not willingly consent to slavery.

Left on its own much longer, the Fed will totally destroy freedom, creativity and industriousness – in short, it will destroy America as a sovereign nation. But only if Americans are willing.

That, of course, is the goal of the Federal Reserve System. National bankruptcy is and was designed to push our nation into one-world governance.

ZIRP control of the price of interest is people control. Dudley a.k.a. Goldman at the NY Fed is imposing decisions upon the people and this nation that should have been left for the American people to decide themselves. This massive failure of central planning is the death of America's free market system.

We must audit the Fed and then end it. The Fed has destroyed the integrity of America’s monetary unit; these international banking families who own the Fed are nothing more than counterfeiters, artificially manipulating the price and supply of our money – the lifeblood of the economy. There can be no free market and a privately run Federal Reserve central bank at the same time.

“To understand how unwise it is to have the Federal Reserve,” Ron Paul has said, “one must understand the magnitude of the privileges they have. They have been given the power to create money, by the trillions, and to give it to their friends, under any terms they wish, with little or no meaningful oversight for accountability. Thus the loudest arguments against greater transparency are likely to come from those friends, and understandably so.”

No nation has ever spent its way out of depression by expanding and destroying the currency. And Bernanke and his kept Congress are proving it again.

The Fed and the U.S. Congress have led Americans to the gates of Serfdom. Should we enter, we enter under the agreement of subjugation to total economic control, the essence of fascism. Slavery.

We are all Minutemen now. Be and stay prepared. We will win this one -- for America.

Tue, 05/21/2013 - 15:15 | 3585048 LawsofPhysics
LawsofPhysics's picture

"American people, who have tasted freedom, will not willingly consent to slavery." - is this the same fat-ass people who "swipe yo EBT" and spend their lives in front of a boob tube?  Good fucking luck.  Long sharecropping...

Tue, 05/21/2013 - 15:37 | 3585123 JR
JR's picture

There are vast differences in people. Some of those men with an EBT card who have lost their jobs might just be fighting along side many others.

The men I’m talking about, LawsofPhysics, are those who will fight for freedom because they love liberty, many times it includes the youth, whose only help is each other.

I’m talking about the men throughout history who’ve always fought for freedom - the man Rose Wilder Lane in The Discovery of Freedom credits with starting the revolution against the British Empire:

“One man began that war. And who knows his name? 

“He was a farmer, asleep in his bed, when someone pounded on his door and shouted in the night, ‘The troops are coming!’

“What could he do against the King’s troops?  One man.  If he had been the King, that would have been different.  Then he could have done great things. Then he could have set everything to rights, he could have made everyone good and prosperous and happy, he could have changed the course of history.  But he was not a King, not a Royal Governor, not a rich man, not even prosperous, not important at all, not even known outside the neighborhood.  What could he do?  What was the use of trying to do anything? One man, even a few men, cannot stand against the King’s troops.  He had a wife and children to think of; what would become of them, if he acted like a fool?

“Most men had better sense; most men knew they could do nothing and they stayed in bed that night in Lexington.  But one man got up. He put on his clothes and took his gun and went out to meet the King’s troops.  He was one man who did not consent to a control which he knew did not exist.

“The fight on the road to Lexington did not defeat the British troops. What that man did was to fire a shot heard around the world, and still heard. One finger on one trigger began the war for the revolution…”

Lane’s point:

That fight is still continuing, one man’s fight – Everyman’s fight - against tyranny.

Tue, 05/21/2013 - 16:38 | 3585373 LawsofPhysics
LawsofPhysics's picture

And who will supply/fund this great revolution?  Therein lies the rub.

Tue, 05/21/2013 - 17:32 | 3585549 JR
JR's picture

Well, in that local guns shops can’t keep ammunition on the shelf, and some shop owners are calling this “the worst shortage they’ve seen,” I guess Americans will just finance it themselves.

Why all those tremendous increases in gun and ammo purchases? A significant new survey reveals the truth: millions of Americans believe they may need the weapons to protect their rights against a government takeover. IOW…revolution!

Leave it to to tell the truth from the survey: 44% of Republicans believe armed revolution may be necessary.’

“A new survey of voters by Fairleigh Dickinson University’s PublicMind finds that 29 percent agree with the statement, “In the next few years, an armed revolution might be necessary in order to protect our liberties” – including 18 percent of Democrats, 27 percent of Independents and 44 percent of Republicans.”

Tue, 05/21/2013 - 19:16 | 3585909 klockwerks
klockwerks's picture

 Hey JR, Thanks for the comment. I think part of the ammo shortage is the good folks went out and bought a bunch and hoped, other then at the range, they will never need it. I agree with what you are saying and there are many who will never live the life of a slave to the state. I believe that there are many more "mature" folks that are ready to stand if needed. Not sure how many of the younger set. 

Tue, 05/21/2013 - 13:34 | 3584603 slaughterer
slaughterer's picture

So, given the 3:30 Kev'Henry ramp, we see a slaughterer-approved 1675 EOD print.  But, looking over the market today, I would say, even with Turbo Tuesday, and a nice comfy $3b POMO today, the market is looking pretty tired.  Time to short this bitch again, yo.  


Tue, 05/21/2013 - 13:16 | 3584517 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

The FED is now officially in purgatory ...

Tue, 05/21/2013 - 13:25 | 3584558 dontgoforit
dontgoforit's picture

Next stop: Jamies' hideaway

Tue, 05/21/2013 - 13:16 | 3584521 10mm
10mm's picture

Dudley (Do Right).

Tue, 05/21/2013 - 13:16 | 3584523 ebworthen
ebworthen's picture

The only power the FED has is to defraud taxpayers while enriching banks, and lying.

Tue, 05/21/2013 - 13:17 | 3584527 jubber
jubber's picture

That spike sent European Indexes in computer sync heaven to ATH's triggering stops everywhere

Tue, 05/21/2013 - 13:44 | 3584644 SheepDog-One
SheepDog-One's picture

Hey it's all good...just as long as no one ever demands actual delivery of anything!

Tue, 05/21/2013 - 13:18 | 3584532 JJ McApe
JJ McApe's picture

they cannot stop qe... same with a hardcore drug addict... take away the drugs and this markes will go apeshit

Tue, 05/21/2013 - 13:19 | 3584533 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Just a little bit moar...That ought to do it.

Tue, 05/21/2013 - 13:23 | 3584549 cougar_w
cougar_w's picture

That should be on the list of Famous Last Words, right next to "Watch this" and "I wonder what this does."

Tue, 05/21/2013 - 13:26 | 3584564 dontgoforit
dontgoforit's picture

And as JD Rockefeller said when asked how much was enough, "Just a little bit MOAR."

Tue, 05/21/2013 - 13:23 | 3584535 dolph9
dolph9's picture

They want all your money, and then after they have all your money, they want you dead unless they can milk you as a consumer of welfare.

Prepare accordingly.

Tue, 05/21/2013 - 13:31 | 3584582 cougar_w
cougar_w's picture

My current expectation is that after they take all the money and everyone is broke and desperate, they start abducting healthy young people and cutting them up for their internal organs to sell on the medical black market for the benefit of the aging rich, who have no better use for their wealth than to pursue a kind of cannibalistic immortality.

Essentially, the rich are going to challenge the addage that you cannot take it with you when you go.

Notice the knock-on effect is to murder the young, prolong the old, and then the old die anyway (stupid fucks, entropy always wins) taking the entire US economy with them in much less than a generation.

That's why my novel is called a black tale. Yeah, I probably think too much.

Tue, 05/21/2013 - 13:20 | 3584538 thismarketisrigged
thismarketisrigged's picture

fuck u dudley u douchebag.


how about ending qe so this economy can actually recover. this shit does not work, and never will. put this man in fucking prison already

Tue, 05/21/2013 - 13:23 | 3584540 Cacete de Ouro
Cacete de Ouro's picture

Thats what you get from a private entity owned by a global banking cartel....

Tue, 05/21/2013 - 13:20 | 3584542 madbraz
madbraz's picture

I tell you, Bernanke is a saint next to Dudley.  Saw the man speak once and it is painstakingly obvious that he is a bankers' puppet - as despicable a human being as there is.  The last thing in his mind is the well being of the American people (other than the top 0.1%).



Tue, 05/21/2013 - 13:36 | 3584590 Cacete de Ouro
Cacete de Ouro's picture

Dudley is very dangerous and is most likely a narcissist.  You can see evil in his eyes. I've seen that look before. Reminds me of Gestapo.


Look at picture also. Look at the eyes....


Tue, 05/21/2013 - 13:43 | 3584640 madbraz
madbraz's picture



Cacete de ouro e' foda, hehehe!

Tue, 05/21/2013 - 15:50 | 3585179 Cacete de Ouro
Cacete de Ouro's picture

Sim, kkkkkkk,

you are the first, and probably only person, to get it (the name)... ;) Brasileiro loco

Tue, 05/21/2013 - 15:10 | 3585026 g speed
g speed's picture

he has the lips of Calligulia  ---

Tue, 05/21/2013 - 13:21 | 3584543 Dre4dwolf
Dre4dwolf's picture

Mortgage backed securities are worthless.

What you should be buying is Note Backed Securities.

The Mortgage is worthless without the Note, because all the terms in the Mortgage are Enforced by the Note, so without the Note the Mortgage is worthless paper.

The process of securitizing the Mortgage, bifurcates or destroys the Note.


So, who is going to buy all this worthless paper? ;)

Tue, 05/21/2013 - 13:32 | 3584592 NotApplicable
NotApplicable's picture

If you haven't noticed yet, like any law, they don't really matter.

If they did, I'd be living in a free house right now. But am I stupid enough to take on the biggest evil in the world, all based on some stupid laws? Well, I doubt that the sheriff and his guns are going to take my word for it over theirs.

Tue, 05/21/2013 - 13:24 | 3584553 Bam_Man
Bam_Man's picture


Tue, 05/21/2013 - 13:29 | 3584578 dontgoforit
dontgoforit's picture

Asked my girlfriend if she wanted some Coke with those nuts and she said, "OK, but it might be kind of hard to do a line around that hair!"  dumped her the next day

Tue, 05/21/2013 - 13:31 | 3584589 ParkAveFlasher
ParkAveFlasher's picture


Tue, 05/21/2013 - 13:48 | 3584664 the not so migh...
the not so mighty maximiza's picture

yeah i would think she is a keeper

Tue, 05/21/2013 - 13:24 | 3584555 urbanelf
urbanelf's picture

P or not P.

Tue, 05/21/2013 - 13:25 | 3584561 SDRII
SDRII's picture

"While deflation is ultimately a monetary phenomenon"

Stopped reading

Tue, 05/21/2013 - 13:27 | 3584571 Yen Cross
Yen Cross's picture

     So Dudley refers to ZIRP as "zero bound" now ? Why don't you call it what it really is Dudley, "theft from savers"...

Tue, 05/21/2013 - 13:29 | 3584579 DormRoom
DormRoom's picture

MOAR market distortions.

Gawd, just like the mid 90s, the Fed will do anything to continue the bubbles, and ignore 'irrational exuberance'.


Tue, 05/21/2013 - 13:36 | 3584614 cougar_w
cougar_w's picture

At the end of the era of cheap oil, they have no juice left. They are staring in stark terror at the end of 300 years of free-energy-driven expansion and the death of the 6 billion people born of that. It's all artificial bubbles now, monetary and otherwise, until the end of the world.

Which should arrive some time around 2025. Sooner, if they are serious about this keeping the US suburbs awash in cheap crap from China

Tue, 05/21/2013 - 13:46 | 3584584 CaptainSpaulding
CaptainSpaulding's picture

Dudley said this, But Bullard says that yet Yellen said this and that yet Bernanke says the other thing. Bullish for Paul Masson


Tue, 05/21/2013 - 13:31 | 3584588 rubearish10
rubearish10's picture

Dudley and Bullard both know what day it filled.

Tue, 05/21/2013 - 13:32 | 3584591 youngman
youngman's picture

They do love to talk though.....he can´t change anything....there is no stopping the train now....its full speed ahead until it dies....and it will....when we have trillions of new dollars floating one will want them then....they will exchange them for the Yuan or the rupple at that time...backed by gold of course....but our market will be at 3,000 for the S&P...20,000 for the money chases wealth...or is it just paper....Savers are the ones who will lose it all in this game....and that is sad and wrong....

Tue, 05/21/2013 - 13:37 | 3584617 NotApplicable
NotApplicable's picture

You're not completely correct. There are some things that Dudley can change, which are the expectations of those trying to pick up pennies in front of the steam-roller.

You might notice that he's injected enough contradictory irrationality that the herd loses direction, while the Fed's steamroller keeps smashing the strays while collecting their wealth.


Tue, 05/21/2013 - 13:42 | 3584637 fonzannoon
fonzannoon's picture

These guys have actually been pretty honest lately about a few things. They have been pretty clear that any TBTF institutions get wiped out in the next financial crisis, they won't be bailed out. It is obvious that the next hiccup will cause an avalanche and that is exactly what will happen. So don't keep your money in the bank. Also that avalanche will cause the market to go bidless. So don't put your money in the market. Also that avalanche will send rates skyrocketing. So don't put money in bonds. This will obviously wipe out real estate. So don't keep your money in real estate. This avalanche will be global. So don't keep your money in other currencies.......


Tue, 05/21/2013 - 13:52 | 3584681 SmallerGovNow2
SmallerGovNow2's picture

what's left?  gold, silver, food, and ammo...

Tue, 05/21/2013 - 19:37 | 3585981 klockwerks
klockwerks's picture

Very safe bet and all great investments right now. May not need any of them for a while but feels very good to have all of the above ready.

Tue, 05/21/2013 - 14:36 | 3584888 madbraz
madbraz's picture

The avalanche will cause rates to drop to near zero.

Tue, 05/21/2013 - 13:32 | 3584594 yogibear
yogibear's picture

Dudley, arrogant PhD that bragged about iPod prices going down, there was no inflation.

You can see prices for food and oil are up on average.

Tue, 05/21/2013 - 13:38 | 3584621 NotApplicable
NotApplicable's picture

Well, only no iPod inflation if one doesn't monetize suicidal FoxConn workers.

Tue, 05/21/2013 - 13:33 | 3584596 electricgorilla
electricgorilla's picture

In this thing we call "the market" I can see the FED INCREASING QE as crazy as it sounds. The real economy is in the tank. The QE boys will use that as an excuse to up the ante. You have to take this market as high as it can go so it can crash from the highest level possible.

Tue, 05/21/2013 - 15:26 | 3585081 g speed
g speed's picture

IMHO you are correct in that (putting zillions into eguities is not the same as printing $100 dollar bills) they will take it as high as they can and then erase the zeros--

getting people to take savings that seem to be losing value and putting them in "chasing yield vehicles" that seem to be rising in relative value is an old game. even better if they can get you to spend negative savings (debt) for those "chasing yield vehicles" ---   Its a bank/gov't thing you understand. 

Tue, 05/21/2013 - 13:35 | 3584605 optimator
optimator's picture

Hook 'em up to polygraphs and see the real FED beneath.

Tue, 05/21/2013 - 13:36 | 3584615 Dr. Engali
Dr. Engali's picture

What you mean asset managers might actually have to do something besides BTFD? Holy mother of pearl what is the world coming to?

Tue, 05/21/2013 - 13:38 | 3584620 buzzsaw99
buzzsaw99's picture

In the midnight hour, moar, moar, moar...

Tue, 05/21/2013 - 13:38 | 3584622 SheepDog-One
SheepDog-One's picture

Let's see, they designed a fake fraudulent 'market', and now are concerned that if they stop, then the all-time record high bubble based upon nothing but fakery might get popped? Say it ain't so!!

Tue, 05/21/2013 - 13:39 | 3584624 What you talkin...
What you talkin about Willis's picture

Serious Question??

Does this mean that emergency unemployment benefits that are set to expire at the end of the year will be extend? 

Tue, 05/21/2013 - 13:40 | 3584628 madbraz
madbraz's picture

For the life of me I cannot comprehend how any human being in this country, outside of the top 1% who pull the strings, would still have a cent invested in the stock market.  Are we that stupid?  


Wouldn't you run for the exit at some point when you look at your statement doing so well and things around you not corresponding to that fantasy?  Isn't the number one rule buy low, sell high.


It wouldn't take too many figuring this out to tip the scale against QE steal-fest.  The market would correct to natural levels and people might some day again consider putting new money in the stock market.



Tue, 05/21/2013 - 13:46 | 3584650 SheepDog-One
SheepDog-One's picture

Jesus H. Christ...long winded shit-spewer much, Dudley? Go fuck yourself!

Tue, 05/21/2013 - 13:49 | 3584660 optimator
optimator's picture

The FED will always do what's best for the FED.  When the last sheeple is in the market the Banksters will pull out their profits to add to the gains they've made trading the market(s).

Tue, 05/21/2013 - 13:48 | 3584662 yogibear
yogibear's picture

Dudley: We keep QEing until the US dollar crashes and burns. We are trying this print to the max experiment  on Japan to  analyze how successful it will be when the US debt gets to outrageous levels.

Tue, 05/21/2013 - 13:48 | 3584663 Bastiat
Bastiat's picture

I predict Dudley will have more reason to be terrified in the coming years.

Tue, 05/21/2013 - 13:49 | 3584670 insanelysane
insanelysane's picture

And a few weeks ago people were concerned about how the Fed was going to unwind from QE.

They can never stop buying.  Just stopping the buying will crash the market.  Selling the crap is UNPOSSIBLE!

Tue, 05/21/2013 - 13:56 | 3584694 yogibear
yogibear's picture

"Selling the crap is UNPOSSIBLE!"

Figuring how to force the fed to up the QE from $85 billion/month to $170/billion, then to $340/billion a month could be very profitable.

Get the fed to crash the US dollar.

It won't defend it. It already showed it's hand.

Tue, 05/21/2013 - 13:50 | 3584675 Frank N. Beans
Frank N. Beans's picture

Where can I get the  Cliff Notes for this?

Tue, 05/21/2013 - 13:53 | 3584685 buzzsaw99
buzzsaw99's picture


Tue, 05/21/2013 - 13:51 | 3584680 Savyindallas
Savyindallas's picture

Tis POS MF terrified by the "over reaction"? Stocks are at all time highs and he sees an overreaction? What a scumbag

Tue, 05/21/2013 - 13:53 | 3584689 sandiegoman
sandiegoman's picture

wow, 2 days in a row Gold has fought back against the odds..... Something is brewing.

Tue, 05/21/2013 - 14:00 | 3584703 DIgnified
DIgnified's picture

Agreed.  Take a gander at what i posted below you. 

Tue, 05/21/2013 - 14:03 | 3584711 Bastiat
Tue, 05/21/2013 - 15:44 | 3585157 Herd Redirectio...
Herd Redirection Committee's picture

Hmmm.... They changed the pigs diets recently...  But they have not yet investigated that...

Tue, 05/21/2013 - 14:03 | 3584714 insanelysane
insanelysane's picture

The game is called gold bar, paper, scissors but since this is the real world gold bar will win over paper and scissors.

Tue, 05/21/2013 - 14:02 | 3584708 ekm
ekm's picture

Bernanke is practically a dictator at the Fed.


What anybody else says, it is absolutely and totally irrelevant.

Tue, 05/21/2013 - 15:56 | 3585207 El Hosel
El Hosel's picture

Not really, what anybody else says help keep "the story" alive and well a while longer. One day a hawk speaks next day a dove, that way "the market and investors" don't get too much of a good thing either way. Stroke that story at a moderate pace.

Tue, 05/21/2013 - 14:02 | 3584709 TN Jed
TN Jed's picture


If your boss said you're either going to get a raise or be fired, how would you react?  Whether you decide to work harder or begin stealing office supplies, you know your boss is nuts.

Tue, 05/21/2013 - 14:03 | 3584710 MFLTucson
MFLTucson's picture

The newest stooge is in the News.  Today they dragged out the disgraced Dudley to lie to the people, in a few days will be another propaganda puppet.  Hey Dud, who is going to buy any of the US paper, is you exist?  Answer is no one and your end to QE is nothing but a lie.  

The clown act continues as the MOB move Gold to where they want it so that JPM doesn’t have to fill any contracts and they all expire with small investors losing their life savings while the trash gains more money and power.

Look at the wording of this clown.  The markets may overreact!  What markets Dud, the stock markets that you and the gang have juicing to the ridiculous to create an illusion of prosperity so the slaves to believe all is getting better??

Corruption lies and deception is what is now in control of American politics and money.   Time is approaching for a good old war, always works to distract from the reality these bastards have caused.

Tue, 05/21/2013 - 14:04 | 3584716 orangegeek
orangegeek's picture

New record highs every 1-2 days.


That's a neat trick.


Anyone check earnings?  Oh right, they don't fucking matter anymore.

Tue, 05/21/2013 - 14:33 | 3584871 walküre
walküre's picture

more debt, ie corporate loans or bonds are paying dividends

in the meantime layoffs, reduction of inventories, less production

reality has been suspended when what they call "money" is literally growing on trees and is free

at least Weimar had other benchmark currencies to flee too.

we have gold and silver and when that is all there is left, the system will completely restart from Anchorage to Zulu Township.

Tue, 05/21/2013 - 14:06 | 3584731 WaEver
WaEver's picture

This show ain't funny anymore.
Who's got the remote to switch channels ?

Tue, 05/21/2013 - 14:07 | 3584738 Archetype
Archetype's picture

It seems like the FED is about to panic. When even the known hawks become dovish one starts to wonder. Seems like the FED are starting to realise that the entire market (including the avarage Joes) are watching their every move. Might be a bit hard to scale back those purchases when they in fact are the entire bond market.


The FED has fucked up and they will never be able to fix this. It's simply impossible. Can't wait for the galaxy sized turd to hit the fan thats even bigger.

Tue, 05/21/2013 - 14:12 | 3584770 earnyermoney
earnyermoney's picture

BK thougth BB might be telling the truth on ending QE. Not going to happen on Barry's watch.

Tue, 05/21/2013 - 14:18 | 3584806 f16hoser
f16hoser's picture

End the FED, and the IRS, and this issue goes away. Simple really.

Tue, 05/21/2013 - 14:21 | 3584814 evernewecon
evernewecon's picture





First the Fed buys the MBS’s not at market

value, and then it sells them into a market

who’s interest rate has nowhere to go

but sideways or up.   (Debt securities tend

to drop when rates rise--it takes less principal

for an equivalent return.)


Elizabeth Warren’s .75% rate for students,

though, gets decried as one or other brand

of not sensible.


Someone on CNBC says the banks’

recap was effective, and this was it: 



would have been legitimate “recapping” and actually

one very accomodating to the banks despite

their own folly.

Tue, 05/21/2013 - 14:22 | 3584827 bullmkt
bullmkt's picture

bears,bend over.

thank you chairman.

fuck-you bernankes are the ones who canno trade

Tue, 05/21/2013 - 14:25 | 3584843 walküre
walküre's picture

slaugtherer called it earlier today


Tue, 05/21/2013 - 14:51 | 3584956 adr
adr's picture

If I don't own any stocks, my wealth is not affected if the stock market blows up.

If my company is not publicly traded and focuses on selling goods people actually need. My business is not affected by the stock market blowing up.

If I believe the path to wealth is to place large bets on electronic representations of the greater fool theory, my wealth is destroyed by the stock market blowing up.

If my company is focused on selling trinkets of no real value to people who can only afford them with stock market wealth, then my busines goes bankrupt if the stock market blows up.

If my company is actually bankrupt, but Wall Street believes it is solvent and keeps giving us cash for shares, we're dead ass broke if the stock market collapses.

The first two scenarios lead to a stable economy and a strong middle class. The others give us the bullshit we live with today.

Tue, 05/21/2013 - 15:16 | 3585052 JR
JR's picture

+1, as usual, adr.. A good roundup.

We're looking at what Keynesian economics has done to our free market economy, adr, “they’ve tied it in a plastic bag and they shook [it] upside down,” adr. For the past 85 years, the legislative, judiciary and executive branches have been totally under the influence of Keynesians.

And now the results are in and a major economic crisis has unfolded. And they think we’re in this mess because free-market capitalism and sound money failed.

Of course, Keynes’ motive all along was the establishment of a world central bank and a single fiat reserve currency.

And how’s that going for ya’ in Europe, Mr. Keynes?

As Ron Paul has said: “At least 90% of the cause for the financial crisis can be laid at the doorstep of the Federal Reserve,” with Congress adding its "fuel to the fire."

Tue, 05/21/2013 - 14:53 | 3584960 moneybots
moneybots's picture



Over reaction to the up side begets over reaction to the down side.  All parabolics fail.

Tue, 05/21/2013 - 15:51 | 3585185 El Hosel
El Hosel's picture

Over react to the "market" not going green at 4am every fuking day?

Tue, 05/21/2013 - 14:58 | 3584977 Clowns on Acid
Clowns on Acid's picture

Who knows what Dudley means..? I bet Goldman and other Inv banks do....they are on sped dial.

Oh yeh...whatever happened to that Bloomberg story.....?

Tue, 05/21/2013 - 15:03 | 3584997 Clowns on Acid
Clowns on Acid's picture

" Long-term demographic factors added to the deflationary pressures and structural rigidities, and credit supply problems constrained the reallocation of resources to growth sectors.  These structural factors made it substantially more difficult to escape the deflation trap. "

Oh you mean like unrestarined illegal immigration Mr Dudley...?

Tue, 05/21/2013 - 15:11 | 3585032 QQQBall
QQQBall's picture

How appropriate... The Japan 1 Society - you cannot make this shit up.

Tue, 05/21/2013 - 15:12 | 3585036 B2u
B2u's picture

When Mr. Market decides to go down, there will be nothing the Fed can do to stop it.  Enjoy the ride...

Tue, 05/21/2013 - 15:19 | 3585063 Nue
Nue's picture

More is Less (Economic Recovery) when it comes to QE

Tue, 05/21/2013 - 15:40 | 3585134 moneybots
moneybots's picture

"At the zero lower bound, once you are caught in deflation, it is very hard to get out."

Once you are caught in inflation, it is very hard to get out.

Why are they worried about getting out of deflation?  When was the last time they got out of inflation?  The dollar is worth what, 3 cents compared with 100 years ago?



Tue, 05/21/2013 - 17:26 | 3585522 JR
JR's picture

Dudley uses the fear of deflation nineteen times in this speech on "Lessons at the Zero Bound." During the time after President Andrew Jackson abolished the Second Bank of the United States and Americans had no central bank there was a period when prices fell 32 percent.

John Cochran via The Circle Bastiat blog had this to say about that bout of deflation earlier this month on Zero Hedge.

This [deflation that is predicted to be a consequence of Bitcoin’s fixed nature ] is portrayed as a recipe for economic disaster by those who like to inflate currencies to relieve the burden on borrowers, including spendthrift governments.

It’s true that deflations have sometimes accompanied economic disaster, but also economic triumphs. For example, in ‘Money, Markets & Sovereignty,’ Benn Steil and Manuel Hinds describe the second phase of the Industrial Revolution in the U.S. between 1870 and 1896. Prices fell by 32% over the period, but real income soared 110% amid robust economic growth, expanded trade and enormous innovation in telecommunications and other industries.”


Mike Hewitt, editor of, writes of this period:

"President Jackson was an advocate of sound monetary policies as outlined in the U.S. Constitution. He opposed the central bank system of issuing currency against debt.

“Jackson had an investigation done on the Second Bank of the United States which he said established "beyond question that this great and powerful institution had been actively engaged in attempting to influence the elections of the public officers by means of its money."

“In 1832, Andrew Jackson's re-election slogan was ‘JACKSON and NO BANK!’ On July 10, 1832 President Jackson vetoed congress' decision to renew the charter of The Second Bank of The United States.

"’It is not our own citizens only who are to receive the bounty of our government. More than eight millions of the stock of this bank are held by foreigners... is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country? ... Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence... would be more formidable and dangerous than a military power of the enemy.’ (President Andrew Jackson - July 10, 1832)

“In 1835, Jackson paid off the final installment on the national debt. He was the first and only president to ever accomplish this…

“On 1910, a secret meeting took place on the Morgan estate on Jekyll Island, Georgia…

“Over a period of ten days they drafted the Federal Reserve Act that was voted on in Congress on Monday 22 December 1913 between the hours of 1:30 am to 4:30 am when much of Congress was either sleeping or at home with their families for the Christmas holidays. It passed… and Woodrow Wilson signed the bill into law later that same day at 6:02 pm. This Act transferred control of the money supply of the United States from Congress as defined in the U.S. Constitution to the private banking elite.”

Says Hewitt: “The practice of fractional reserve banking should be criminalized, as is any other form of fraud. No business should be able to lay claim to assets they do not have, let alone lend out these assets and charge interest on them.”

As JS Kim, the founder and Managing Director of SmartKnowledgeU, wrote on ZH in March, “Obviously, the nominal amount of dollars has no meaning...since bankers have destroyed 98% of the purchasing power of the 1913 dollar with their counterfeiting efforts over the last 100 years."

Tue, 05/21/2013 - 15:58 | 3585214 resurger
resurger's picture


Tue, 05/21/2013 - 17:06 | 3585456 alfbell
alfbell's picture



Don't pay attention to what they SAY. Pay attention to what they do.

Fuck Dudley. Fuck the FOMC (The Open Mouth Committee). Fuck The Fed. Fuck the IMF and BIS. Fuck the big banking families behind all of this. Oh, and Fuck Obama.

Tue, 05/21/2013 - 20:03 | 3586052 LongOfTooth
LongOfTooth's picture

Dudley.  As in Dudley Do-Right - a fictional cartoon character.  Uh-huh.


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