Here Is What The Fed's Advisors Really Think About The US Economy

Tyler Durden's picture

Five months ago, in May, in a release that stunned markets, the Federal Advisory Council (FAC) which is composed of twelve representatives of the banking industry (including the CEOs of Morgan Stanley, TD Bank, State Street, PNC, BB&T, First Horizon, Commerce Bank and Discover), and which "consults with and advises the Board on all matters within the Board's jurisdiction" said something very disturbing: the truth.

To wit: "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."

This took place just as the Fed launched its PR campaign to "taper" or rather see what the market's response would be to concerns that the Fed may be, slowly, pulling out of the monthly monetization business. The outcome as we all know, was not good, and it certainly punctured the equity and fixed-income bubbles, if only for the time being. A few days ago, the same Fed Advisory Counsil met again, and once again shared its views on current banking conditions, the economy and markets, with the FOMC Board.

Contrary to the all "rose-colored glasses" reports by the Fed released in the past year, which constantly talked up the "economic recovery" only to punk everyone - economists and market participants alike - when it stunned markets with its no taper announcement in September, over fears what this would do to the economy, the Federal Advisory Council's view on things is decidedly less "rosy."

This is a the summary of how the various bank CEOs that tell the Fed what it "should" do, see the US economy and financial system currently:

  • Loan demand is tepid due to uncertainty around the economic outlook, regulatory burdens, health care and tax reforms, geopolitical risk, and sovereign deficit spending.
  • Senior bank leaders at the recent Barclay’s investor conference consistently noted that loan demand is softening and mortgage banking revenue is evaporating faster than expected. This consensus has led some analysts to lower quarterly earnings forecasts for several regional banks.
  • Both consumers and businesses have deleveraged over the past few years and remain more selective about new borrowing and capital expansion.
  • Loan volumes are dominated by refinance activity. New loan volumes are concentrated in mergers and acquisitions, capital distributions, and share repurchases.
  • Excess capacity remains in the banking sector and in the institutional markets. Loan tenor, structure, and pricing continue to drift negatively. With large inflows of funds seeking yield and variable pricing, there is greater structuring weakness in the institutional markets.
  • The outlook for the loan markets is uncertain and no near-term changes are expected.
  • The financial markets appear to be dominated by decreasing liquidity as some dealers are no longer making a market in certain asset classes. It is clear that dealers are less willing to hold sizable inventories of bonds.
  • The financial markets have been adversely impacted by ever-changing regulatory metrics, such as leverage capital requirements, Basel III’s Liquidity Coverage Ratio (“LCR”), and the liquid asset buffer. The response to these ratios may cause downstream implications for other financial institutions and municipalities, with SIFIs less willing to use their balance sheets to provide secured funding (repurchase agreements) or to book municipal deposits.
  • While many analysts have argued that a small reduction in monthly asset purchases still represents an extremely accommodative monetary posture, the markets’ recent price movements suggest otherwise. Thus far, even the threat of lower Federal Reserve purchases paired with an increase in selling has had a major negative impact on the bond market.
  • Increases in longer-term rates have caused a flip from unrealized gains to unrealized losses in longer-duration investment portfolios, which could ultimately impact consolidation in the industry.

Still think anything is recovering, and that stocks reflect anything more than the unprecedented liquidity tsunami the same ill-advised Fed has created (and which by implication means that said liquidity is likely never going to me removed voluntarily)?

Didn't think so.

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Millivanilli's picture

It sure is nice of those snakes to fund banks guilty of money laundering, market manipulation, securities fraud and rate rigging, with zero percent money all the while ripping off savers with ZIRP.    Then they turn around and charge high interest loans to the savers who can't make ends meet.




We are blood bags and they are ticks.   It is that simple.

McMolotov's picture

Jeez, it sounds pretty bad when you put it that way...

EnslavethechildrenforBen's picture

The Fed is just a front for the Military.

General Decline's picture

And who is the military the front for?

McMolotov's picture

"Aliens!!!" —Giorgio A. Tsoukalos

Shocker's picture

Here is the Job part of the economy.

Layoff / Business Closing List


EnslavethechildrenforBen's picture

The Military is a front for a bunch of sociopaths

NoDebt's picture


You know it, I know it and now, at long last, the Fed knows it.

That's why it's called a trap.  Easy to get into, hard to get out of.

eclectic syncretist's picture

The realization that printing money will not solve the problem, but in fact is the problem, has not yet materialized in the cranium of the average citizen.  But the increasingly desperate measures being taken by the politicians, banksters, and central banksters clearly signal that the day this fundamental realization awakens within the populace is drawing nearer rapidly. 

Herd Redirection Committee's picture

You need to recheck your history books.

Really, its the military that calls the shots?  In the 19th century, a nations ability to conduct war abroad depended on its ability to get physical bullion, gold and silver, to its troops abroad.  That made the military beholden to the money powers.  You might want to look into the financial aftermath of a certain Battle of Waterloo.

As powerful as the military is, the ability to create money out of thin air is more powerful.

Dick Buttkiss's picture

"As powerful as the military is, the ability to create money out of thin air is more powerful."

Until it isn't, and both powers bite the dust.

There will be quite a duststorm in the interim, of course, so best hunker down and store up:

EnslavethechildrenforBen's picture

Only a mentally retarded cock sucker would actually believe that you can create money out of thin air...

eclectic syncretist's picture

Yeah!  The truth is that the Fed creates money by just typing the numbers into a computer.

General Decline's picture

@ McMolotov

"Aliens!!!" —Giorgio A. Tsoukalos


That guy could take a dump in the toilet and figure out a way to blame it on aliens.

cougar_w's picture

I'm not saying it's aliens -- but yeah, aliens.

TrumpXVI's picture

Good grief, what KOYNED of accusation is that!

Kirk2NCC1701's picture

Ah, of course... the Ancient Aliens model.  And Lucifer (the Light Bearer) became a disgruntled indentured servant (or contrarian second in command) to God, who rebelled.  His 'adversarial' role got him branded as the Adversary (Satan).  After their starship mutiny failed, they were dumped on planet Earth, where they've been stirring up trouble for God ever since.  ;-)   ;-)

The Heart's picture

"After their starship mutiny failed, they were dumped on planet Earth, where they've been stirring up trouble for God ever since."

Ahoy Kirk!

Yes, true that. They also have like an evil virus, contaminated many people and beliefs that were meant for the good of mankind. The pollution of darkness that is revealed to be light, is turned back into darkness with the diabolical plan of infesting the entire body with the choking killing pusy dis-ease of greed, and ego. What was given by many for the good of the whole has been sequestered and used for the gains of power, and more ego.

There are many souls aboard that are sick and fricking tired of all the corruption and blatant criminality. Soon the Marks will make the moves, the Tylers are watching the doors, all is seen and known.

Now for some camaraderie and good fun. All for ships and giggles of course.:


ZerOhead's picture

It's really just the global US dollar hegemony enforcement unit for the Fed & Special friends.

(Just ask Saddam Hussein and Muammar Gaddafi... oh wait... they and their oil for Euro dreams are already dead)

General Decline's picture

It was the "special friends" part I was to refering to above.

ZerOhead's picture

I try not to mention them too much by name these days... it hurts my neck too much having to look up in the sky all the time...

General Decline's picture

For incoming drones?  Yeah, I know what you mean.

ZerOhead's picture

Ragtop convertibles and motorcycles are all I drive these days because of the great visibilty plus you can get out of them real fast.

I hear camel sales in the middle east these days are through the roof...

CPL's picture

Depends who is paying them.  Oddly some rituals haven't been observed for around 1300 years on the word SOL-DIER, latin root of solidum.  Which is Payment to a Lord, as in sacrifice.  Versus Mercenary which is Payment of Fortune, or Soldier of fortune.

In Japan historically it goes further and adds a third option.  Samurai, bound to a vassal lord until they die.  Ronin, money loving thugs.  Yojimbo, honourable money loving thug that's friends with people.

Gets even more interesting when looking at Elite soldiers, in latin the word is schola, which is the root of scholar.  Neat huh.

dontgoforit's picture

The rape continues until they're fully sated - well, actually they will never be fully sated, so I guess we will continue to have it stuck to us.  There was a study done a year or so ago by a 'prestigious' university using MRI equipment and confessed liberals and conservatives.  When asked the same economic or political questions there was a marked difference not only in the response, but in the part of the brain that registered the question & answer.  The conclusion of the experiment is that liberals and conservatives brains are about as different as male & female human brains.  Now, I could get quippy and say, "they discovered the libs didn't have any brains," but that wouldn't be completely fair.  Fairness, by the way, was a subject that libs were all over (when it went their way).

Wahooo's picture

"We are blood bags and they are ticks."

Quotes like this are why I come to ZH.

cougar_w's picture

Best just before lunch.

Chris Jusset's picture

Repeat after me: "THERE IS NO RECOVERY."


Repeatedly blowing unsustainable bubbles IS NOT A RECOVERY.


Who controls the British crown?
Who keeps the metric system down?
We do, we do
Who keeps Atlantis off the maps?
Who keeps the Martians under wraps?
We do, we do
Who holds back the electric car?
Who makes Steve Gutenberg a star?
We do, we do
Who robs gamefish of their site?
Who rigs every Oscar night?
We do, we do

Seer's picture

So, people believe this is all due to the POTUS?  Logic test!

What precipitated all of this?  De-regulation of the financials (which predated "Barry")?  The housing bubble (which predated "Barry")?  TARP (which predated "Barry")?

Yeah, "Fuck Barry!" is a great slogan, one that works well for the other part of this infested System.

Hurling invectives, if not childish, does absolutely NOTHING to get to the REAL ROOT of the "problem."  For those who don't follow history, and would therefore be unable to identify the real root problem, I point out the following as the epochal moments:

1) 1971 - US goes FULL fiat;

2) 1971 - US oil production peaks (the tide turns, which ultimately tacks the balance of trade the other way [net oil exported to net oil importer]);

3) 1971 - US "representatives" establish market relationships with China.

1971 is a symptom.  The "disease" is based in cancer- perpetual growth within a finite host (in the case of the US, and of the world, that "host" is the planet).  Yes, folks can dig back to 1913 but the paradigm of perpetual growth on a finite planet existed BEFORE the creation of the Fed.

Failure to understand these things only insures that we get something like the Bolshevik Revolution- expectations of a big break from a controlling/ruling class to one "for the people."  Because folks there FAILED to understand the REAL ROOT of their problems, and focused their energies on getting rid of the "fuckers,"  they fell victim to their own shitty "solution."

It's the System.  And as long as we expect it to deliver perpetual growth on a finite planet we are subject to shitty results: changing the team of horses does nothing to change the fact that the cart is loaded with (unwanted) shit.

"Fuck Barry!"  All hail the new Barry! (and thanks to the legislation enacted during the Bush administration the POTUS has unlimited power via "national security" declarations; just wait to see what the next POTUS is able to pull off)

hangemhigh77's picture

It's good to know that these guys tell us the truth.  I think we should hang them all anyway.  Fuck it.

Seer's picture

We turn into a bunch of vigilantes, kind of like Al Qaeda, and THEN what?  What happens after we've spent all our energies on drawing blood?

I'm not arguing against the notion of punishment for the lot of them, but after punishment has been meted out we'll STILL be broke, STILL with a fundamentally flawed System (predicated on the impossible- perpetual growth on a finite planet), and STILL with massive imbalances (how can one advocate on one hand for claw-backs from TPTB and other the other discourage takings from people?).  Oh, and there's less and less readily obtainable Natural Capital available with every passing day: raw resources, the kind that actually makes things work, are becoming more energy intensive to extract as energy itself is becoming harder to obtain).

hangemhigh77's picture

Since it's a private company printing our money I say we put McDonalds in charge. This way we can get cheap toys with our QE.

masonman's picture

If it was a private company then you would be able to do exactly what they do and not go to jail for it. You are no longer a private company when you're constantly talking to congress, and when you're the only entity in the entire country that is allowed to do what you do.

tempo's picture

American's military power is and will remain for years the primary reason the dollar is the world's reserve currency which is the reason we can run massive deficits and live on entitlements w/o any real cost.

McMolotov's picture

It works until it doesn't.

EnslavethechildrenforBen's picture

Drive through Detroit and look around. Reminds one of Rome.

aardvarkk's picture

I drove through Detroit in 2010 driving a big rig to pick up a load.  The pickup was in probably an "average" part of town, to judge from the various neighborhoods.  I had to drive over one avenue that was unpaved.  Sitting for a couple of hours waiting, I saw maybe half a dozen "gangsta" cars drive by, one fight on the street that ended in one guy unconscious and no cop response before he got up and walked away minus some teeth, and one girl, maybe 10 years old, whipping by on a crotch rocket and hitting a telephone pole and nearly killing herself.  The whole time I had my pistol beside my seat, white-knuckling the steering wheel and wishing I was somewhere else.  Even Cleveland would have been preferable.

I have not spent a lot of my life in inner cities but I've seen a few, and this environment struck me as super-toxic for an adult, nevermind a 10-year-old.  I imagine it's gotten significanly worse in the last three years, to judge by the stories I've read.  I sometimes wonder if that little girl is still alive, and if so whether she's now strung out on drugs or turning tricks yet.

Tim_'s picture

"Even Cleveland would have been preferable."

Up to 28 men and boys 'filmed gang rape' of 11-year-old girl on their mobile phones

"A defence prosecutor today claimed up to 28 men and boys may have been involved in the filmed gang rape of an 11-year-old girl."

"At the moment only 18 suspects aged between 14 and 27 are accused of taking part in the rape last Thanksgiving in an abandoned mobile home in Cleveland, Texas."

Seer's picture

It happens slowly, then all at once.