"Markets Under The Spell Of Monetary Easing" Bank Of International Settlements Finds... Same As "Then"

Tyler Durden's picture


Ben Bernanke 7/1/2005, CNBC interview:

INTERVIEWER: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying ‘Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.’ Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?


BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

Ben Bernanke 10/20/05 Testimony before the Joint Economic Committee, Congress

House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.

Ben Bernanke  3/28/07 – Testimony before the Joint Economic Committee, Congress

Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear…At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.

Ben Bernanke 5/17/07 – Remarks before the Federal Reserve Board of Chicago

...we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well.

Ben Bernanke 1/10/08 – Response to a Question after Speech in Washington, D.C.

The Federal Reserve is not currently forecasting a recession.

Ben Bernanke 2/27/08 – Testimony before the Senate Banking Committee

I expect there will be some failures [among smaller regional banks]… Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.

Ben Bernanke 4/2/08 – New York Times article after the collapse of Bear Stearns

“In separate comments, Mr. Bernanke went further than he had in the past, suggesting that the Fed would remain aggressive and vigilant to prevent a repetition of a collapse like that of Bear Stearns, though he said he saw no such problems on the horizon.”

Ben Bernanke 6/10/08 – Remarks before a bankers’ conference in Chatham, Massachusetts

The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.

Ben Bernanke 7/16/08 – Testimony before House Financial Services Committee

[Fannie Mae and Freddie Mac are] adequately capitalized. They are in no danger of failing… [However,] the weakness in market confidence is having real effects as their stock prices fall, and it’s difficult for them to raise capital.

Two months later:  9/24/08 – Response to a question after JEC testimony… during the TARP debate, two weeks before the Fed initiates its liquidity facility for commercial paper markets

I see the financial markets as already quite fragile. The credit markets aren’t working. Corporations aren’t able to finance themselves through commercial paper. Even if the situation stayed as it did today, that would be a significant drag on the economy.


* * *

... And Now

Jeremy Stein, February 7, 2013 speech "Overheating in Credit Markets: Origins, Measurement, and Policy Responses"

"[M]y reading of the evidence is that we are seeing a fairly significant pattern of reaching-for-yield behavior emerging in corporate credit....Even if we stipulate that low interest rates are part of the reason for, say, a worrisome boom in one segment of credit markets, they are unlikely to be the whole story....One of the most difficult jobs that central banks face is in dealing with episodes of credit market overheating that pose a potential threat to financial stability/"

Minutes of May 1, 2013 FOMC Meeting

"a few participants expressed concern that conditions in certain U.S. financial markets were becoming too buoyant, pointing to the elevated issuance of bonds by lower-credit-quality firms or of bonds with fewer restrictions on collateral and payment terms (socalled covenant-lite bonds). One participant cautioned that the emergence of financial imbalances could prove difficult for regulators to identify and address, and that it would be appropriate to adjust monetary policy to help guard against risks to financial stability."

May 17, Record of Meeting of the Federal Advisory Council and the Board of Governors, unleased after FOIA requests were submitted

There are potential risks associated with current policy. The Fed’s securities purchases have reduced mortgage yields and, to a lesser extent, Treasury yields. Current low bond yields are disruptive to management of fixed-income portfolios, retirement funds, consumer savings, and retirement planning. They may encourage unsophisticated investors to take on undue risk to achieve better returns. MBS purchases account for over 70% of gross issuance, causing price distortion and volatility in the MBS market. Fixed-income investors worry that attractive mortgage-backed securities are in very tight supply. Higher premium coupons carry too much exposure to prepayments, potentially led by new government support programs for housing. Many are concerned about the Fed’s significant presence in the market. They have underweighted MBS in favor of corporate, municipal, and emerging-market bonds. There is also concern about the possibility of a breakout of inflation, although current inflation risk is not considered unmanageable, and of an unsustainable bubble in equity and fixed-income markets given current prices.


Further, current policy has created systemic financial risks and potential structural problems for banks. Net interest margins are very compressed, making favorable earnings trends difficult and encouraging banks to take on more risk. The Fed’s aggressive purchases of 15-year and 30-year MBS have depressed yields for the “bread and butter” investment in most bank portfolios; banks seeking additional yield have had to turn to investment options with longer durations, lower liquidity, and/or higher credit risk. Finally, the regressive nature of the artificially compressed savings yields creates pent-up demand within bank deposit portfolios; these deposits may be at risk once yields begin to rise and competitive pressures increase.


Uncertainty exists about how markets will reestablish normal valuations when the Fed withdraws from the market. It will likely be difficult to unwind policy accommodation, and the end of monetary easing may be painful for consumers and businesses. Given the Fed’s balance sheet increase of approximately $2.5 trillion since 2008, the Fed may now be perceived as integral to the housing finance system.

BIS Quarterly Review June 2013

Markets under the spell of monetary easing


Risk assets extended their rally as further monetary easing helped market participants tune out signs of a global growth slowdown. The spate of negative economic news between mid-March and mid-April did little to interrupt the rise of equity prices in advanced economies. The growth jitters left more of a dent on commodity prices while emerging market equities continued to underperform.


This new phase of monetary policy accommodation in the major currency areas spilled over to financial markets around the world. The prospect of low yields in core bond markets contributed to investors searching for yield in lower-rated European bonds and emerging market paper as well as in corporate debt. This drove spreads even lower while issuance in riskier credit market segments strengthened. Abundant liquidity and low volatility fostered an environment favouring risk-taking and carry trade activity.


... equity markets were quick to shrug off the uncertainty and extended their gains as investors expected poor fundamentals to be followed by further policy easing.


The S&P 500 posted several all-time highs in rapid succession, first on 11 April and again throughout May.  Similarly, European bourses held up well in the face of negative economic news and political uncertainty. Throughout this period, the Japanese equity market continued its relentless ascent, fuelled by the prospect of massive monetary stimulus. The rapid gains left equity valuations vulnerable to changes in market sentiment...

Larry Fink, May 2013 CNBC interview: "It just doesn't matter"

* * *

This time will be different

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Spitzer's picture

Same old until the 33 year old bond bubble bursts



flacon's picture

Spells, black magic, "hell", animal spirits..... boy these Ivy Leage intellectuals sure are good witch doctors. 

LetThemEatRand's picture

Give 'em hell, Princeton grads.  And of course FUCK YOU BERNANKE!

augustusgloop's picture

Give 'em hell = Unleash Hell, (I did). 

macholatte's picture




Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein

nope-1004's picture

Nice Zoltar pic.  Maybe Bernocchio just wants to be 'big'.


Insanity: doing the same thing over and over again and expecting different results.

BINGO!  I would have expected a PhD or smart dude to say something a little more eloquent than "give 'em hell".  Bernanke is an insane idiot and admitted as much by stopping the public display of insanity by issuing unlimited QE instead of each subsequent numbered version.  QE4 is embarrassing enough and after 6 monetizing failures, QE4EVA is a good attempt at saving face.


fourchan's picture

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: 'Account overdrawn.'"  - Ayn Rand

markmotive's picture

The policies repeat because the bubbles repeat. Wash, rinse, repeat.

The California housing bubble of 2006 is playing out all over again in Canada.

Prepare accordingly.


James_Cole's picture

Ah I see, another, 'Bernanke is an idiot' article for not seeing any of this coming.

But I'm conflicted, because on the other hand according to credit suisse and zh the fed's policies have worked out extremely well for the top 0.6% of the world. So, now I'm wondering, who are the real idiots here?

knukles's picture

Duck you fuckers
Coulda been worse
In an alternative parallel universe coulda been Princeton's very own Paul Krugman as Head of the Fedupyers Reserve giving the speech as a Welcome Home Inauguration of the Paul Krugman School of Sophist Economics, Vaginal Ablutions and Syllogistic Logic ...


Intelligence_Insulter's picture

Yea when will the new generation of meme tards step up to the plate?

maskone909's picture

Enjoy your fucking student loans and no employment!

akak's picture

Hell is other central bankers.

Son of Loki's picture

"Zoltar" spelled backwards is "Shithead."


That's the world of magic!

Mr. Magoo's picture

Ask ZOLTAR (Bernanke) any question you desire and insert your middle finger into his A-HOLE and listen in amazement as ZOLTAR  (Bernanke) dispenses profound wisdom!

His crystal balls glow with revolving colors and creepy carnival music plays as even ZOLTAR (Bernanke) himself begins to glow. And as the suspense reaches its pinnacle, ZOLTAR (Bernanke) begins to speak.

Beware - it may not always be what you want to hear!

Especially if your The DJI

enloe creek's picture

eww eee eww ahah ting tang walla walla bing bang

stocktivity's picture

It's all Bullshit!!!  Futures up...rally on. 

fonzannoon's picture

rally's lead to rising yields lead to sell off. Rallies will be sold from here.

yogibear's picture

The Russians and Persians are no pushovers. With the Chinese they know every way to counter-act US offensive weapons. The Chinese already fired a warning ballistic missile off the coast of California a couple of years ago.

All these countries have to do is kill the US dollar and cause a currency crisis. Obama, Bernanke and  the US fed are already doing a great job destroying the US economically. Defeat the US economically so it cannot afford the military, just like the former Soviet Union. 

sgorem's picture

my new coined phrase is "Bullishit".

SRSrocco's picture

Looks like gold demand in DUBAI in April was 10 times the normal level.  Furthermore, Dubai bought an additonal 50 metric tonnes of gold since the April price takedown.

It is quite amazing that the WESTERN MSM has actually hoodwinked a great deal of investors and hedge funds to dump precious metal contracts and buy very expensive stocks and bonds.

More on:

Dubai Gold Sales Surge, helped along by India



Antifederalist's picture

Fink is aptly named.

What a sociopathic piece of shit.

augustusgloop's picture

and the fucking gall of fink to reprise bill murray's meatballs refrain w/o attribution.

Yen Cross's picture

     I could give two poo<poos>.   http://www.zoltarmachine.com/movie

LetThemEatRand's picture

Thank God they didn't appoint this moron to Chair an unelected cabal of banks that affect all of us directly through international monetary policy.

rp1's picture

VIX inverse head and shoulders

max2205's picture

Wait till Summers takes over.....

HardAssets's picture

Summers  . . .    Yeah, another key indicator that the Criminals are completely in charge now.

And most Americans are too dumb to even know who he is.

MeelionDollerBogus's picture

This is just begging for a Mark Dice street-interview video petitioning people to support, or not support, Suzanne Somers to run the Federal Reserve.

Bear's picture

This was just so hard to read and relive all the lies, bluster, hypocrisy, and shit

luna_man's picture



Nothing to do but be patient...It's falling apart at a quicker pace...Soon, the masses will be ready for their pound of flesh!



yogibear's picture

Their destroying the US economically.  Why bother militarily. Just like the former Soviet Union.

fonzannoon's picture

anyone else just see that China PMI?


Yen Cross's picture

 The Aussie/Hedgies. lmao. Primary dealers will eat you for lunch<

slimething's picture

I just BTFD, was that smart?

PiltdownMan's picture

Europe is still tanking, US is sucky and even China is slowing. Quick Ben, more QE! /sarc


Downtoolong's picture

So long Ben, and thanks for all the hell.


Caviar Emptor's picture

Reagan proved that deficits don't matter
Obama is proving that debt doesn't either
The Fed soon will prove that currency also matters not.

.. It all works until it all melts down.

yogibear's picture

Currency crisis straight ahead.

Nice job Bernanke, Evans, Dudley and Yellen. China, Russia and Iran can give you awards for destroying the US economic system with all your counterfeiting. 

Luxy's picture

BIS to TPTB: in case you missed the recent Fed minutes this thing is about to come apart. Everyone in their jets and rendezvous in Patagonia. NM. RedShield and Co will buy the first round of Opus One.

spine001's picture

The Bush family has been for years one of the biggest buyers of land in Patagonia, Argentina.LOOK IN GOOGLE EARTH MANY HIDDEN FORTRESS MANSIONS IN PATAGONIA WITH BANK VAULTS AND SMALL ARMIES IN ARGENTINA. And for you to get an idea of the capability of law enforcement in Argentina, the only time a drug trffickimg plane was bought down here was in 2011 when one of those planes shot down a helicopter of the local armed forces who was attempting to check on them. The few radars that they have only operate a few hours per day and they have thousands of frontier paths with neighbouring countries with no customs or inmigration checks. Ideal place to dissapear isn't it?

Abi Normal's picture



Is the Dollar Dying? Why US Currency Is in Danger
Published: Thursday, 14 Feb 2013 | 12:49 PM ET
By: Jeff Cox
CNBC.com Senior Writer

The U.S dollar is shrinking as a percentage of the world's currency supply, raising concerns that the greenback is about to see its long run as the world's premier denomination come to an end.

When compared to its peers, the dollar has drifted to a 15-year low, according to the International Monetary Fund, indicating that more countries are willing to use other currencies to do business.

While the American currency still reigns supreme -- it constitutes $3.72 trillion, or 62 percent, of the $6 trillion in allocated foreign exchange holdings by the world's central banks -- the Japanese yen, Swiss franc and what the IMF classifies as "other currencies" such as the Chinese yuan are gaining.

"Generally speaking, it is not believed by the vast majority that the American dollar will be overthrown," Dick Bove, vice president of equity research at Rafferty Capital Markets, said in a note. "But it will be, and this defrocking may occur in as short a period as five to 10 years."

Bove uses several metrics to make his point, focusing on the dollar as a percentage of total world money supply.That total has plunged from nearly 90 percent in 1952 to closer to 15 percent now. He also notes that the Chinese yuan, the yen and the euro each have a greater share of that total.

"To the degree that China succeeds in increasing its market share of the world's currency market, the United States is the loser," Bove said. "For years, I have been arguing that the move of the Chinese makes perfect sense from their point-of-view but no sense for the Americans."

For a country with a budget deficit in excess of $1 trillion a year, the consequences of losing standing as the world's reserve currency would be dire.

"If the dollar loses status as the world's most reliable currency the United States will lose the right to print money to pay its debt. It will be forced to pay this debt," Bove said. "The ratings agencies are already arguing that the government's debt may be too highly rated. Plus, the United States Congress, in both its houses, as well as the president are demonstrating a total lack of fiscal credibility."

Bove is not the only one sounding the reserve currency alarm, though the issue has fallen off the front pages as hopes for a sustained U.S. recovery have taken hold and the stock market has surged to near-record highs.

But the looming battle over budget sequestration in Washington could revive long-standing fears of fiscal stability.

"If (dollars) no longer offer the safety that investors have come to expect, they will not function as the stable collateral required by bank funding markets," Barry Eichengreen, a professor at the University of California, Berkley, warned in a Financial Times commentary late last year. "They will not be regarded as an attractive form in which to hold international reserves. And they will not be seen as a convenient vehicle for merchandise transactions."
To be sure, the markets at this point are not acting like the dollar is in severe trouble. The greenback has maintained its position as a general safe haven in times of trouble.

"Longer term, of course, countries are going to diversify away from the dollar if they can. There are more favorable investment opportunities out there if you can catch yield," said Christopher Vecchio, currency analyst at DailyFX, a trading firm. "Despite the increase in risk to the U.S. dollar and Treasury, investors still feel safest at home."

But the Federal Reserve's successive quantitative easing programs, which have created $3 trillion in new greenbacks, continue to spur worry over the dollar's status.
"The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as the world's reserve currency," said Michael Pento, president of Pento Portfolio Strategies. "It's a thousand times more important than a nuclear bomb being tested by North Korea. It's a thousand times more important that we keep the dollar as the world's reserve currency, and yet we are doing everything to abuse that status."

The dollar's seemingly precarious status is why Pento remains bullish on gold and believes the dollar's demise as the premier reserve currency could end even sooner than Bove predicts -- perhaps by 2015.

"Five to 10 years -- that would be an outlier," he said. "I would say 2015, 2016, that would be the time when it becomes a particularly salient issue. When we're spending 30 to 50 percent of our revenue on debt service payments, we enter into a bond market crisis. The dollar starts to drop along with bond prices. That would set off the whole thing." In response...I hope I'm not insulting anyone's intelligence here, but I thought I'd take a moment to outline why the dollar's reserve currency status is such a big deal.  So much so that you have had 50 years of dollar hegemony and the wars and conspiracies and scandals and general unsavory relationships that have come with it.  What could be so important that we are willing to give up our souls as a nation and delve head first into deceit, lies, murder, and theft?

Let's go back to the beginning.  I'll spare you the details in the early years.  It's been a long time and frankly that ship has sailed.  But, I'll at least address it so you can make sure to connect the dots.

1.  The year is 1913.  The US has emerged from the industrial revolution with wealth and power beyond what we had ever dreamed.  Europe was still top dog but the writing was on the wall.  The US was the new world power and the tribal and cultural differences in Europe would be dragging them headlong into war for the foreseeable future.  The US, had started to fall into a powerful trance.  That is the combination of Fabian Socialists and eugenics on one side and the corporatist consolidation of power, wealth and influence on the other.  They came together in secrecy on Jekyll Island, GA to hatch the greatest heist mankind ever imagined.  There the Federal Reserve was born and it would facilitate the interest of both parties.  The corporatists would be allowed to amass untold wealth and the socialists would be given the mechanism to control nearly all parts of human existence.  The irony being that they knew praxeology exists and used that existence to fight a battle claiming it did not.  Simply amazing really.  I ramble.  Okay, step one...open Pandora's box.

2.  The US then set out to profit from the great war.  And profit they did.  Welcome to the game Mr. Military Industrial Complex.  The Federal Reserve financed the whole shabang.  After the war, they financed reconstruction.  Everyone owed the Fed.  This gave wealth and power to the same two groups from number one.  See Roaring 20's.

3.  But soon they over reached.  On the political side you had old rivalries in Europe that flared up again.  The European central bankers weren't about to just go away.  They had their own hegemony to protect (notably the pound sterling).  So the politicians here at home came up with the Smoot Hawley tariff act.  It started a trade war and massive economic pain at home.  See wall street crash 1929.  Then you add in the dust bowl and viola you have man made economic Armageddon.  

4.  But, like any good tyrant, the one who created the problem (corporatists and politicians) they roll in with the answers...tyranny.  Er....The New Deal.  Gold confiscation was a central tennant but so too was the complete control of the private sector with programs like Blue Eagle.  In addtion was the creation of political patronage and the centralization of power in the halls of the tyrant (FDR).  The media became a propaganda arm of the state and the judicial system was rendered powerless through FDR's threat to load the court.  America died in principle in these years.  The venom was placed in 1913 but the death rattle started in the 30's.

5.  Like #2, we figure that if it worked once before it ought to work again.  M.I.C. fires up.  Massive debt creation.  Millions die.  Finance reconstruction.  Confiscate more of the world's wealth.  It worked pretty good too, especially the part where the surviving powers divvy up the world.  Yeah, that's not creepy at all.

6.  Anyway, what came from this was the US as the world reserve currency.  We promised to be the good guys.  You can trust us because we just saved the world.  If you don't, well...did you see that mushroom cloud?  Part of the deal was that the world would put their gold on deposit in the US and the US would generate the amount of paper FRN's to maintain world stability and provide liquidity in the market so that the world could buy and sell commodities freely.  In fact, all those markets would be run right here in the US too.  How nice of us.

7.  The system worked for a while but then something happened.  The MIC and the political class and the banking class made a mistake (if you can call it that).  In fighting the cold war and Vietnam they were losing the propaganda war.  People didn't want these wars and they certainly didn't want to pay for them.  Furthermore, the US economy had evolved to becoming almost entirely predicated on the existence of cheap oil.  So the US decided that they would fight these wars without taxing the population to do it.  For that matter, they'd declare war on anything and everything.  We got LBJ's Great Society and suddenly there is war on poverty and war on illiteracy and war on hunger a so on.  All of these wars financed with....deficit spending.  Uh, oh.  The tipping point.

8.  How do we become a debtor nation and spend like crazy without increasing the money supply?  Answer?  You don't.  Problem: if economy is based on cheap oil and we print more money oil becomes relatively more expensive.  What do we do?  Answer: take over the world.  Two things happened.  The world saw what we were doing and basically said "we want out".  Nixon said, "Oh no, nobody gets off this ride".  He declared all the gold belonged to the US and that anybody who wanted their gold would get FRN's instead.  WOW!  Why does everyone love us again?  But it didn't stop there.  We HAD to find some place to put all of these new dollars we are printing.  The answer?  Petrodollars.  Kissinger goes over to KSA and gives a handjob and a threat to King Faisal.  You sell ONLY in dollars to the world and you agree to use your profits to buy US debt.  In return we will give you a 100% pass on anything you do and we'll give you 100% promise of security from anyone and everyone.  The result?  Dollar hegomony.  Anyone who tries to skirt the dollar ends up dead.  The rest of the world has to convert to dollars to buy commodities.  We print like crazy and the rest of the world eats our inflation.  

Ok, why is the reserve currency thing a big deal.  Well, the only reason interest rates remain low and inflation doesn't go full Zimbabwe is that the rest of the world has to possess / hold a shitload of dollars in order to simply run their day to day operations.  We create an artificial demand for US dollars through the threat of force of the dollar hegemony.  So the more we print the more demand for dollars out there.  Now, this is starting to break down and the Fed owns and abnormally large % of dollars now.  If the dollar loses reserve status and countries can buy and sell in other currencies what happens?

Demand for FRN's goes down.  This also means the demand for US debt goes down.  Essentially that's the same thing but that is an esoteric conversation best had over Scotch.

When nobody wants our shit what happens?
1.  All those dollars stay here and aren't shipped overseas.  There are more dollars chasing the same amount of goods.  Inflation...big time.
2.  In order to sell the debt, remember we are running massive debt, interest rates have to come up to entice demand for people to buy a bond in current dollars that will be paid back with less valuable future dollars.  Interest rates need to go way up.
3.  If interest rates go up, the cost to finance the debt goes way up.  If that happens, the US becomes insolvent.

You now have runaway inflation, destruction of financial capital and default on social contracts among other things.  The system will collapse.  But what about the timeline above strikes you?  It should be that the collapse isn't a bad thing to a tyrant.  It is simply a moment of opportunity.  The system will collapse into totalitarian framework created over the last 50 years.  We will all be wiped out and re instituted as wage slaves in service to the collective in return for subsistence.  The elite (MIC, Political Class, Financial Class) have always known how the game ends.  Anybody with a brain can see that this is unsustainable.  Do we honestly think they are unaware or victims?  Please.  The only variable is timing and backdrop.  They will allow the system to come down when it benefits them to do so.  I think that is 2015 but it might be sooner should a black swan emerge of suitable value or longer if they can squeeze more time and money from the system.

The only news in this article or any that come thereafter is not about "what"....only "when".  That is the last unknown. posted by rothbardian in the cleve

knukles's picture

They quite Little Dickiebird Bove as a responsible source?
Cut me a fucking break.