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Santelli Stunned As Nobel Winner Fama Explains Fed Unwind "Is No Big Deal"

Tyler Durden's picture





 

If ever there was a few minutes of television to confirm the deep-seated disconnect between reality and the ivory-tower academics pulling the levers behind the curtain, CNBC's Rick Santelli just exposed it. For once, simple questions were enough to allow none other than Nobel-Prize-winning economist Eugene Fama to show Santelli (who did his best not to explode in incredulity) that the "smartest people in the room" just don't get it (just as they didn't get it in 2007). Santelli was gracious and polite as he asked what the great professor's thoughts were on QE... (and the entire brief clip is worth watching in its entirety) but his conclusion is perhaps the most stunning (and left Santelli almost silent)... when asked the impact of the Fed 'Tapering' or even selling down its $4 trillion in assets, Fama calmly says "it's basically a neutral event... It's No Big Deal!" Indeed, professor, that is so clear...

 

"What the Fed is doing now... is kind of a nothing activity."

 

 

Or the Hollywood version...

 


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Tue, 10/29/2013 - 12:54 | Link to Comment redpill
redpill's picture

If it's no big deal why do they keep doing it?

Tue, 10/29/2013 - 12:55 | Link to Comment kralizec
kralizec's picture

Habit, ignorance, laziness...all of the above!

Tue, 10/29/2013 - 12:58 | Link to Comment TruthInSunshine
TruthInSunshine's picture

If it's "no big deal," go BIG-ER or go HOME!

Turn that 4 trillion USD Fed "balance sheet" into 40 trillion USD...

...bitchez.

Tue, 10/29/2013 - 12:59 | Link to Comment kralizec
kralizec's picture

It's easy!

Here, hold my beer...

Tue, 10/29/2013 - 13:05 | Link to Comment SafelyGraze
SafelyGraze's picture

one small step toward unwinding our balance sheet is simply selling the MBS we now own

the dollars come back to us and are retired

so if you were thinking about MBS as xmas presents or whatever, you can Help The Fed Unwind (HTFU) by grabbing these hot items before they're gone

hugs,
jellin 

 

Tue, 10/29/2013 - 13:07 | Link to Comment kaiserhoff
kaiserhoff's picture

What an idiot.

More proof, as if it were needed, that macro-economics is a lunatic asylum.

Tue, 10/29/2013 - 13:16 | Link to Comment NotApplicable
NotApplicable's picture

At least he isn't a total psychopath (as evidenced by his inability to NOT stare directly into the camera while blatantly lying, instead, staring at his feet in shame).

Fucking clown shows!

Tue, 10/29/2013 - 13:19 | Link to Comment redpill
redpill's picture

The thing is these cocksuckers know they are wrong.  If they really thought they were right and that we can bring the economy back with funny money bullshit, they WOULD triple it.  Otherwise how fucking evil are you sitting there and not doing more if you think it's going to work?  The answer is they KNOW it's not going to work, they are using loose money policy to obfuscate the situation, avoid blame, and ensure the financial oligarchy remains in full control.  Assholes.

Tue, 10/29/2013 - 13:22 | Link to Comment Pinto Currency
Pinto Currency's picture

 

The banks receive ~ $80 billion in interest payments from the 'excess reserves' held by the Fed as part of QE.

Tell them that taking away the $80 billion of walking around money they receive every year is no big deal

Tue, 10/29/2013 - 13:36 | Link to Comment quintago
quintago's picture

Buy long-term debt and issue short-term debt. Yeah, the ARM worked out so well for all those homeowners when it went mark-to-market.

Tue, 10/29/2013 - 15:06 | Link to Comment macholatte
macholatte's picture

 

He's from Chicago

Nuff said.

Tue, 10/29/2013 - 15:40 | Link to Comment Indian_Goldsmith
Indian_Goldsmith's picture

I feel the Professor's right. I feel it yo! The dud'e getin the noobel or some such bigass prize!

Tue, 10/29/2013 - 17:03 | Link to Comment TwoShortPlanks
TwoShortPlanks's picture

Tow-the-line motherfucker.....otherwise that grant they promised you will evaporate, and that position you hold, you won't.

This Cat knows a Shell Game when it sees it, Baldy here doesn't.
http://www.youtube.com/watch?v=GoXHVs65NFQ

STEP. WAY. BACK.

TSP a bull shit sandwich without a crust is still a bull shit sandwich
http://twoshortplanksunplugged.blogspot.com.au/

Tue, 10/29/2013 - 23:09 | Link to Comment eatthebanksters
eatthebanksters's picture

Quick...pull my finger!

Tue, 10/29/2013 - 23:15 | Link to Comment markmotive
markmotive's picture

Why do CNBC hosts never let their guests finish a sentence?

Wed, 10/30/2013 - 00:02 | Link to Comment diesheepledie
diesheepledie's picture

Because Santelli was ranting the usual ludite rant and doesn't understand modern economics. The Fed is in uncharted territory and Fama is one of the few people who truly understands it. He is right. These are nothing events. 

Wed, 10/30/2013 - 04:28 | Link to Comment Squid-puppets a...
Squid-puppets a-go-go's picture

Ohhhh, but you do. Well, la-di-da

Its really easy to 'look' like you're more clever than the rest of us. But I note you're as tight lipped as the Fed Reserve 'architects' as to just why the laws of economic gravity, common sense, and mathematics itself no longer apply

Wed, 10/30/2013 - 06:20 | Link to Comment NidStyles
NidStyles's picture

Yes, because the past 5 years of those "Modern Economics" have certainly shown how efficient and accurate their controls and manipulations have been... We can just ignore every missed called and the delusion that the economy recovered while that funny money is still being created out of thin air, right?

 

Fucking shills..

Wed, 10/30/2013 - 00:02 | Link to Comment diesheepledie
diesheepledie's picture

heh

Wed, 10/30/2013 - 07:07 | Link to Comment Truthseeker2
Truthseeker2's picture

! ! ! They do it because they know the --->
"Global Financial Architecture and Economic Systems is on the Verge of Collapse" . . . and there's no way they can stop it!
 http://stateofthenation2012.com/?p=2200

*


Wed, 10/30/2013 - 07:25 | Link to Comment HulkHogan
HulkHogan's picture

@ macholatte

 

They're both from Chicago.

Tue, 10/29/2013 - 15:07 | Link to Comment smlbizman
smlbizman's picture

paul krugmen may have just lost his championship belt....he doesnt appear to be the dumbest motherfucker on the planet anymore...

Tue, 10/29/2013 - 15:33 | Link to Comment King_of_simpletons
King_of_simpletons's picture

This guy has won the Nobel Prize for Economics for the next whole decade. In economics, Nobel is given to dumbest of all assholes.

Tue, 10/29/2013 - 15:57 | Link to Comment Sandmann
Sandmann's picture

Yes because he is the antithesis of Hyman Minsky

Tue, 10/29/2013 - 19:12 | Link to Comment Oldwood
Oldwood's picture

Its pretty obvious what direction the Nobel board is pushing for. Fuck these assholes. They study and confer amongst themselves upon a solution to a problem they cannot fully imagine and then jamb this shit down our throats because we are obviously too ignorant to know what is in our best interest. Yes, they get the prize all right! These mushrooms would likely shrivel and blow away in the light of day (common sense).

Wed, 10/30/2013 - 07:05 | Link to Comment fockewulf190
fockewulf190's picture

@redpill

" If they really thought they were right and that we can bring the economy back with funny money bullshit, they WOULD triple it."

When the Fed had heaped up $1 trillion on the books, that is exactly what they did....they tripled it to 3!! Onward to $9 trillion!!

Wed, 10/30/2013 - 06:22 | Link to Comment NidStyles
NidStyles's picture

It's not the Nobel committee. It a bunch of Swiss bankers. Look it up, see who sponsored and backs the fake Nobel Prize in economics.

Wed, 10/30/2013 - 21:47 | Link to Comment PT
PT's picture

Economics is not a science.  It is not even a pseudo-science.  It is now just the propaganda arm for the elite.  Gone is the "divine right of the aristocracy".  Now is the "scientific proof" of the "economists" ... that bankers need to be rich and everyone else needs to be poor - how convenient.  Yes, things are going to get better ... any minute now ... trust me, you just have to wait a little longer ...

Guess what!  
1.  You lose your life one day at a time. 
2.  Every day the sheeple quietly suffer, the elite party and the top propagandist "economist" has done his job.  His job isn't to fix the economy.  His job is to assure the sheeple that everything will be alright.

Tue, 10/29/2013 - 14:07 | Link to Comment csmith
csmith's picture

If the rate paid on excess reserves is 0.50%, seems to me the annual income to the banks would be more like $20 billion, not $80 billion, given that reserve bank credit is today just under $4 trillion.

Tue, 10/29/2013 - 14:19 | Link to Comment dontgoforit
dontgoforit's picture

Invasion of the Body Snatchers.  Google barges indeed.  1.3 billion hollow points and a billion mini-drones to carry them.  300 million FEMA coffins all ready to use.  America Usurped.  Attack at will.  What defense?  A tennis racket or an EMP producer is about all you got.  All these lies; all this stuff.  C'mon, man!  What do you think is gonna happen?  Nothing?  Do you not believe it feasible that America could be taken by such a plot?  Hope I'm wrong.  Sure seems like a ton of czars appointed by the prez and the prez doesn't know shit about anything, just ask him, or Jay Carney, or Hillary or Pelosi.  There's a rat in the woodpile.

Tue, 10/29/2013 - 14:28 | Link to Comment Pinto Currency
Pinto Currency's picture

 

Good call csmith - my mistake.

The Fed has only paid the banks ~$17 billion in interest on excess reserves.

The $80 billion was a Fed projection of annual interest payments if interest rates normalized to 4.5% with reserves remaining at April 2013 levels.

There is an additional unstated subsidy in the value that the bonds that the banks held having been driven up by QE.  This is an additional freebee but only if the banks sell these bonds before interest rates rise.

Tue, 10/29/2013 - 14:53 | Link to Comment MillionDollarBogus_
MillionDollarBogus_'s picture

The New Yorker's John Cassidy asked Fama about the credit bubble that led to the housing bubble and ultimate bust, the famed professor said:

"I don't even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don't know what a credit bubble means. I don't even know what a bubble means. These words have become popular. I don't think they have any meaning."

Tue, 10/29/2013 - 15:01 | Link to Comment Bay of Pigs
Bay of Pigs's picture

In other words, Fama is just another FED and Central Bank drone/apologist who should be dismissed as a crackpot entirely.

Tue, 10/29/2013 - 16:20 | Link to Comment object_orient
object_orient's picture

Another gem:

Are you saying that bubbles can’t exist?

They have to be predictable phenomena. I don’t think any of this was particularly predictable.

http://www.newyorker.com/online/blogs/johncassidy/2010/01/interview-with-eugene-fama.html

Wed, 10/30/2013 - 08:54 | Link to Comment Ranger4564
Ranger4564's picture

This guy is going to be FAMAOUS. He will be the new and improved Greenspan. The scariest thing is, even when Greenspan was lying, it was fucking obvious, but a lot of people accepted it. This guy is blowing smoke up everyone's ass, but the above statement isn't an indictment.

He's saying, in order for a bubble to be classified a bubble, someone needs to be aware pricing is in excess of valuation to an exaggerated extent. The deception is that there are people who are warning of this, but he dismisses them by previously stating there are always fearmongers / ralliers, and you have to ignore them. So basically, catch 22, you lose.

Hang him now, save humanity later.

Tue, 10/29/2013 - 14:40 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

Mini drones?   Can they navigate through forest?  Not convinced, but please, continue.

Tue, 10/29/2013 - 13:25 | Link to Comment NoDebt
NoDebt's picture

Has to be.  When you have newly minted Nobel prize winning economists telling you everything is fine, nothing to see here, the end must be nigh.  

Maybe I was too hard on Headbanger yesterday.

Tue, 10/29/2013 - 14:13 | Link to Comment PT
PT's picture

Bank-issued prize winning economist =
Fox issued prize winning chicken coop designer =
Goebbels issued prize for journalism 

Tue, 10/29/2013 - 13:31 | Link to Comment GernB
GernB's picture

He admitted he was wrong. He said he expected short term interest rates to go up but they went down. Translation: this isnt working as expected, our models must be wrong, we don't know what the effects of what the Fed is doing will be.

Tue, 10/29/2013 - 13:44 | Link to Comment insanelysane
insanelysane's picture

They believe the models are correct but reality is wrong.

Tue, 10/29/2013 - 17:48 | Link to Comment jimmytorpedo
jimmytorpedo's picture

Economics:

Resources are finite.

Desire is infinite and unpredictable.

All the rest is bullshit to justify sitting in your ivory tower.

Tue, 10/29/2013 - 19:06 | Link to Comment Notarocketscientist
Notarocketscientist's picture

'They believe the models are correct but reality is wrong.'

 

Quite possibly the most brilliant comment ever to grace the pages of ZH

Tue, 10/29/2013 - 19:20 | Link to Comment Oldwood
Oldwood's picture

Yes! through our constantly changing meanings and uses of words I think now reality is simply but another possibility. Everything has become relative and you perception of reality and mine don't have to be the same. Its like what used to be a lie is now simply just an unfortunate repeated statement which could be construed to be untrue, like "if you like your existing healthcare and want to keep it, you can under ACA". We just have to learn to be more accomodating with our language. Its almost like going to grade school was a complete waste of time. Even math is relative now.

Tue, 10/29/2013 - 20:04 | Link to Comment daveO
daveO's picture

Thanks to the dollar's Petro/Reserve status. Living in the Twilight Zone, until dollar collapse.

Wed, 10/30/2013 - 04:32 | Link to Comment Squid-puppets a...
Squid-puppets a-go-go's picture

yer,

i nearly creamed my pants with glee last week when the Saudi's made noises that 'might' be interpreted as consideration of accepting alternatives to the $US for oil

Wed, 10/30/2013 - 07:17 | Link to Comment fockewulf190
fockewulf190's picture

Need to give notarocketscientist an honorary degree in rocket scientry for that comment. Think I'm going to frame it.

Wed, 10/30/2013 - 09:01 | Link to Comment Ranger4564
Ranger4564's picture

Insanelysane... as absurd as that statement might seem to you, it indicates quite clearly the extent to which the oligarchs fabricate the reality in which we live. I know a lot of people don't believe anyone is that smart, like Fama, I say it's easy to declare such things 2020 hindsight, but when Bernay's was manipulating the vast majority of the populace, few understood until it was far too late. In the same way, there are all sorts of cultural controls that drive people to do certain things they've been taught, at the behest of the oligarchs.

The true meaning of your statement is that they have to adjust some aspect of control because the objective is the results derived from their models. Whether that involves bombing China, buying your house, shutting down the small businesses, I don't know, but something is being adjusted to make sure the results align with their model. That's how they stay in power. They plan and modify and plan and modify. We plod along.

Wed, 10/30/2013 - 12:08 | Link to Comment Raging Debate
Raging Debate's picture

Insanelysane - It is about about self preservation for all of us in the end. However, the second variable is short term vs. long term in how we as individuals succeed or fail, suffer or not and that takes learning from history and APPLYING it.

I could go deep write an article or post a long comment describing the cycles of evolution or tie in physics but I will merely say dance until the music stops to keep what your have, raise income through collaboration at the local level but suffice to say it is wise to have the 3 b's as Zerohedge users often proclaim: :
1) Beans
2) Bullion
3) Bullets

The last is for the increasing crime rate because with empires and human nature you let them rattle apart and keep your eye simple. God bless you all, may we look after one another during what inevitably must come next. By 2021 it will look better for mankind but the final world war will come first.

Tue, 10/29/2013 - 13:54 | Link to Comment Son of Captain Nemo
Son of Captain Nemo's picture

 

And rest assured this won't stop as long as the politicians, professor(s) and bankers like this perfect asshole are allowed to continue with a voice on the MSM circuit telling the 99% that all is well with the systematic demolition of our monetary system, and oh yeah almost forgot that laws are kinda being broken in the process.

How is it that CNN, NBC and FOX can keep bringing back the likes of Dick Cheney and Richard Pearle on their programs when the majority out there know and understand after 12 years of this shit that they lied, stole and murdered to make their fortunes, and nobody has the guts on these networks to call them for what they are? More importantly no attorney with a spine out there who will prosecute them in a court of law?

What did Eric Holder say about prosecuting TBTF's several months back?  If the AG says is allowed to get away with statements like this, who will replace him in order to make it stop?

Tue, 10/29/2013 - 14:37 | Link to Comment vxpatel
vxpatel's picture

The 'big problem' is that many of us on zerohedge feel as thought there is a problem, we don't get, or can't accept that fact, that things are just swell for those in power.

Tue, 10/29/2013 - 16:28 | Link to Comment Nick Jihad
Nick Jihad's picture

And, the worse things get for those not in power, the more those in power will do anything to stay there.

Wed, 10/30/2013 - 09:30 | Link to Comment Momauguin Joe
Momauguin Joe's picture

Global reset is inevitable now. Just a matter of when and how much dieoff.

Tue, 10/29/2013 - 13:55 | Link to Comment lasvegaspersona
lasvegaspersona's picture

No!!!

In the board game he is playing all the rules are being followed, no one is cheating.

He doesn't do 'real life' because the rules are largely unknown and that might make him feel unsure.

Wed, 10/30/2013 - 09:28 | Link to Comment RafterManFMJ
RafterManFMJ's picture

The only function of economic forecasting is to make astrology look respectable.

John Kenneth Galbraith

Wed, 10/30/2013 - 19:34 | Link to Comment Antifaschistische
Antifaschistische's picture

I realize I'm a day late to this commenting party....

however..

....all counterfeiters know that if they go full retard printing money, they eventually destroy the value of their own fake paper.   The only way to keep the counterfeiting scam stable and profitable for insiders is to trickle charge the currency into the economy and pretend like it's  "neutral" activity.

All first spenders of the counterfeited dollars will support the neutrality theory.

 

Tue, 10/29/2013 - 13:20 | Link to Comment James_Cole
James_Cole's picture

Economics nobel isn't a real nobel and is often handed out to only the most useful of idiots. Just sayin'

Tue, 10/29/2013 - 13:25 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Did you stop for a moment to consider that one Paul Krugman won the Nobel in economics way back when?

Wait...

...disregard that.

Tue, 10/29/2013 - 13:30 | Link to Comment JerseyJoe
JerseyJoe's picture

BINGO!

Tue, 10/29/2013 - 13:38 | Link to Comment Alpo for Granny
Alpo for Granny's picture

Unlike the Nobel prize for Peace which is reserved for our most esteemed and highly regarded luminaries.

Tue, 10/29/2013 - 13:51 | Link to Comment NotApplicable
NotApplicable's picture

One can only hope that they keep the prize for Erotic Literature uncorrupted.

Tue, 10/29/2013 - 13:38 | Link to Comment redpill
redpill's picture

You mean the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel that not only is not a nobel prize but is sponsored by the oldest central bank on the planet?

Tue, 10/29/2013 - 14:20 | Link to Comment PT
PT's picture

Sorry to repeat myself so soon:
The Goebbels Prize for Journalism
The Fox Prize for Chicken Husbandry

The sheep are quietly making their way to the slaughterhouse in an orderly manner.  Mission Accomplished.  Prizes to those responsible. 

Tue, 10/29/2013 - 13:58 | Link to Comment SDShack
SDShack's picture

Nobel peace prize isn't real either... 0zer0 won it.

Tue, 10/29/2013 - 16:11 | Link to Comment NotApplicable
NotApplicable's picture

Well... technically, he was still peaceful back then, having yet to have the opportunity to send out the drones.

Tue, 10/29/2013 - 19:27 | Link to Comment Oldwood
Oldwood's picture

He heroically sought out peace at every opportunity in his career as a community organizer. He worked tirelessly to take guns away from every person in Chicago who might have successfully defended themselves from an act of random crime. May they rest in peace.

Wed, 10/30/2013 - 02:00 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

Gandhi never won the Peace Prize, and Alfred Noble invented and sold dynamite.  There.

Tue, 10/29/2013 - 13:17 | Link to Comment john39
john39's picture

lunatics? nah, just liars.   they defend the system, and are rewarded very well.  this isn't really about money, its all about control and power.

Wed, 10/30/2013 - 08:44 | Link to Comment Parisnights
Parisnights's picture

If the Fed is essentially doing nothing, "kind of a nothing activity".. Then why do we even need the Fed?  Could it be that old hickory was correct?  END THE FED!  Fuck Yellen-  just end the Fed's charter.

Wed, 10/30/2013 - 07:34 | Link to Comment rbg81
rbg81's picture

This guy looks like Hannibal Lecter--if he were an economist.

Seriously, the whole game is rigged because ALL the Central Banks are colluding and have each others back.  Until that changes, they can do whatever they want and the rest of us will suffer the distortions like the good little bitchez we are.  If you want to escape it, the only way is to get off the grid--good luck with that.

Tue, 10/29/2013 - 13:12 | Link to Comment Future Jim
Future Jim's picture

They keep doing it because otherwise the interest rate paid by the US government would already be 10% and on a parabolic upward curve  and the annual cost of the interest would be as much as all federal tax revenues. Any doom beyond that is hard to predict exactly other than it would be BAD.

OR

The US government could just spend less money, but that is not going to happen.

Tue, 10/29/2013 - 13:38 | Link to Comment tvdog
tvdog's picture

If interest on U.S. government debt went to 10%, it would be impossible for the government to raise enough taxes to pay that. Default would be inevitable.

Tue, 10/29/2013 - 14:02 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

So they yoke the economy to extortionarily-priced financing terms, while simultaneously all real, value-adding capital is disassembled, liquified, and cast against the red hot inflationary engine in order to cool or insulate it as markets oscillate hot and cold as needed to keep the foul fiat-pumping heart deep within beating.  

Tue, 10/29/2013 - 14:46 | Link to Comment Zadok
Zadok's picture

Wouldn't it be fair to say default has already occurred but the consequences are in progress?

Wed, 10/30/2013 - 07:37 | Link to Comment rbg81
rbg81's picture

Bingo--we are all suffering the consequences in slow motion.  The only way to maintain order & stability is to slowly transition to total State control--which is obviously what is happening.

Tue, 10/29/2013 - 16:02 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

Default already happened.  And it's pretty clear when it happened.

http://research.stlouisfed.org/fred2/series/BASE?cid=124

If you are looking at this and not seeing a default in progress, keep trying, you'll get it. 

Tue, 10/29/2013 - 18:12 | Link to Comment Diogenes
Diogenes's picture

They'll just borrow enough money to get out of debt.

Tue, 10/29/2013 - 23:17 | Link to Comment ElvisDog
ElvisDog's picture

If interest on U.S. government debt went to 10%

If my mom had a dick, she would be my dad. The Fed is in complete control of short term interest rates. They will never be allowed to go to 10%. As long as there are no limits to the size of the Fed's balance sheet, QE will continue and interest rates will be suppressed.

Tue, 10/29/2013 - 13:30 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

The Fed is printing money to offset the disappearance of money from ongoing defaults, mostly of mortgages.  The elimination of mark to market lets banks conceal that happening, but that doesn't mean it's not happening.  The Fed is essentially offsetting/replacing the money those banks are losing, declared or not.  It's an ongoing bailout.

There doesn't have to be an unwind.  All of the bonds bought can just mature and not be redeemed.  The unwind is a non event.

There is no rationale for the Fed to unwind (sell those bonds) and drain money out of a system losing money to defaults.

 

Tue, 10/29/2013 - 13:37 | Link to Comment tvdog
tvdog's picture

If the Fed, which can print money in unlimited amounts, "loses" 4 trillion dollars, did they really lose it?

(And if a bear craps in the woods and no one's around, does it really stink?)

Tue, 10/29/2013 - 13:52 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Fama's answer about 4 Trillion on one side and 4 Trillion on the other side of a balance sheet was not explained well.

I think he is talking about the bond maturing date, at which time a balance sheet entry does apppear on "the other side" and it would retire the paper and yes, it's a non event.

What is annoying was his focus on reserves in excess of requirements.  Paying interest on those reserves is to affect the Fed Funds rate.  It's $1 Trillion.  His explanation implied it was 4 Trillion.  I think that was because the interview was badly done overall.

Santelli's point is legit.  Why not QE all the time, pre 2008?  Why is it only now and off/on since 2009?  Fama didn't answer that.

Tue, 10/29/2013 - 14:02 | Link to Comment SDShack
SDShack's picture

Actually, what happens is the bonds mature, and are just rolled over into new debt. Essentially the same as "not redeemed" for all intents and purposes according to the Fed Ponzi.

Tue, 10/29/2013 - 16:15 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

You are both correct:

1.  Debt is eventually retired as credit is applied to it.

2.  Debt is being created at a rate that substantially exceeds the rate of retirement via credit, because;

3.  Credit (in stable value terms, and a.k.a the real productive value of assets, both in human and capital terms) is not keeping up with created debt ), and is probably actually decreasing, rapidly. 

Ergo:

The value of debt (in stable value terms) is decreasing, rapidly.  A lazy and decently accurate way to show this is simply to bump up the rate of increase in the Fed adjusted reserves since the market low of March 2009 vs. the rate of increase in any of the major stock indicies.  You'll see that the stock indicies are increasing about 40% slower than the rate of increase in adjusted reserves.  If the value of debt was stable in real terms, you would see an almost perfect 1:1 ratio between the two.  In other words, the crash we experienced did not stop in March 2009 (in real terms).  Actual value has fallen another 40% in the last 4+ years. 

Wed, 10/30/2013 - 05:08 | Link to Comment Squid-puppets a...
Squid-puppets a-go-go's picture

but isnt the debt in column A negated by credit in column B 'Non event' hypothesis forgetting one major dynamic: That the Treasury sucks money from the US taxbase while the shareholders ( primary dealers?) suck money from the Fed ?

If the Fed truly were a govt institution this circular creating/extinguishing credit might be feasible, but as the Fed is privately owned - by oligarchs - who will never forego their pound of flesh lest the devil take the hindmost - is this 'non event' hypothesis feasible

 

(i havent wrapped my head around the 'non event' mechanics so i may be well off base but please enlighten me)

Wed, 10/30/2013 - 12:57 | Link to Comment Raging Debate
Raging Debate's picture

Great explaination Panafrican and the debt overhang in 2008 was 40%.

Tue, 10/29/2013 - 16:15 | Link to Comment LawsofPhysics
LawsofPhysics's picture

All of this mental masterbation will be irrelevant when no one wants the dollar, or any other fiat for that matter.  Even more so when scarcity really kicks in and no-one wants to sell the commodities they already have.  eCONomics is not a science, period, and the laws of Nature and physics really don't give a shit.

Tue, 10/29/2013 - 14:06 | Link to Comment TheInfoman
TheInfoman's picture

The Fed prints out of thin air.  Bear crap is digested Wall Street bulls.

Tue, 10/29/2013 - 13:52 | Link to Comment starfcker
starfcker's picture

Crash, i think you nailed it. i have been one unhappy camper, impatiently waiting for the big event so i can get back to what i know, but i'm getting tired of waiting. the big event only has to happen if the head of the snake stops playing. i'm starting to think that hank paulsen, long high on my list as one of the most repugnant and first in line on my gallows steps, had this completely figured out on day one. the problem was liquidity, plain and simple. not enough money in the system for the system to operate. remember the system has gotten a whole lot bigger. i can't say i like how it has been done, i believe in broad money, but what do i know? it's now 5 years later and this jalopy is still rolling. maybe hank should have gotten the nobel prize, maybe history is going to view him quite differently.

Tue, 10/29/2013 - 14:06 | Link to Comment SDShack
SDShack's picture

The Fed Ponzi is essentially a Western Ponzi... all the Western "Democracies" are part of the club and complicit. The problem is the dollar reserve status causing inflation OUTSIDE of the West. A small glimpse of that is what caused the Arab Spring. Keep this going, and Arab Springs will be breaking out all over the planet. The Ponzi will end eventually because Non Western alliances will say "enough" concerning dollar reserve status. The steps are already in motion by Non West players and well documented.

Tue, 10/29/2013 - 13:55 | Link to Comment DonFromWyoming
DonFromWyoming's picture

All of the bonds bought can just mature and not be redeemed.

Really?  So the Fed's "balance sheet" is really just some scraps of paper that have no meaning?  $40 trillion, here we come...

Tue, 10/29/2013 - 14:21 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Well, yes.  It's treasury paper.  Why would the Fed demand that Treasury give them cash for redeemed bonds?  The Fed can have all the cash it wants.  It doesn't need any from Treasury.  So when a Treasury instrument matures that the Fed bought maybe a year or two ago, the instrument just disappears and the Fed does not demand cash from Treasury.

Non-event.  The money stays in the system.

As for why you can't do it to infinity, obviously because other countries/currencies might not cooperate and necessary imports from those countries would reprice.  Real assets with value (not gold, whose value is dependent on the imagination of two parties) like oil or the calories in food would redenominate in price upward as the individual dollar dilutes when measured by oil or food.

In fact, because oil isn't $1000/barrel and food $100/calorie we learn that the printing hasn't exploded the money supply -- thereby showing that there is a shrinkage pressure on money supply from some other source.  i.e. defaults.

 

 

Tue, 10/29/2013 - 15:08 | Link to Comment saveandsound
saveandsound's picture

What you are saying is, that the Fed forgives the debt when the Treasury Bond expires? That is monetising debt... no, hold, ahrg, mom. That can't be, can it? The currency would come unhooked...

It is indeed interesting, that there is still demand for Dollar. Everybody knows that they keep on printing Dollar to finance their wars. Has never, ever worked in history so far.

I'm not sure that gold or any other precious metal will work as an insurance. Real estate, maybe, however when the goverment needs securities it might grab for real estate as well.

Nah, "we'll see" said the zen master.

Tue, 10/29/2013 - 15:28 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Your comment is the ongoing ZH search for the alternative asset class that is immune to all this.

Looking at it from Bernanke's point of view (and Draghi's quote), you do whatever it takes.  If the Fed has to print to replace money from these ongoing defaults, then that's what it will do.  If it takes 30 years, they'll keep printing.  That would be the theory.  If the defaults on mortgages continue (as personal income falls) then the Fed will replace that money to avoid outright deflation and they'll do it however long it takes.

It doesn't become a problem until the dollar dilutes, and it can't dilute if those defaults continue.  The total money in the system doesn't increase if the defaults keep erasing some.  And so oil doesn't reprice to $1000/barrel (at least not for dollar dilution reasons) and food doesn't reprice to $100/calorie.

Of course, the question does arise, why are the defaults continuing.  THAT is the core issue.  Not the Fed's printing.  Answer: because economic activity as a whole is in decline.

 

Tue, 10/29/2013 - 15:51 | Link to Comment Law97
Law97's picture

Excellent discussion.  I'll add that the Fed's policies and goals, which you so succinctly explain, are designed to protect the banks and other monied interests.  If they allowed defaults, then asset prices would fall in line with falling incomes, in other words, the free markets would reprice at a new equilibrium.  Living standards wouldn't take nearly as big as hit as they are now with artificially high asset prices (notably real estate).

So the bottom line is that the Fed is preventing losses at the top at the expense of everyone else.  It really is wealth transfer.  That it continues with so little oversight is mind boggling.  The Fed is engineering a wealth transfer much more massive than congress ever could with piddly ol' fiscal policy. 

The Fed has grown more powerful than all the other three branches of government.  Of course it's an illusion based on collective self-deception and denial, much like fiat itself.

Tue, 10/29/2013 - 16:29 | Link to Comment post turtle saver
post turtle saver's picture

yes... since the People In Power are typically wealthy, and the wealthy hold their wealth in assets and not cash, guess what the People In Power want to keep from happening at all costs?

you got it... no No N O   deflation in asset prices, no matter what it takes...

Tue, 10/29/2013 - 15:57 | Link to Comment macroeconomist
macroeconomist's picture

Keep in mind that the profits of the FED are transferred to the Treasury, so alternatively they could ask for the value of the bonds from the Treasury, and then hand it back to them. Simple game.

 

Some good reading here on if central banks can go bankrupt

http://econpapers.repec.org/paper/cprceprdp/6827.htm

And the impact of QE on bank balance sheets

http://www.rokeonline.com/roke/post%20crisis%20monetary%20policy%20debate.pdf

Tue, 10/29/2013 - 16:24 | Link to Comment saveandsound
saveandsound's picture

Of course, the question does arise, why are the defaults continuing.  THAT is the core issue.  Not the Fed's printing.  Answer: because economic activity as a whole is in decline.

Hmm, could the drop in money velocity and/or economic activity be an (unintended) consequence of rising prices but stagnating income? One can't buy as much as one was used to. To less income could also explain further defaults.

At the moment I don't see an end to that. However, if we would really see a turnaround, money velocity catches up, economic activity stays where it is, what happens then? Is the Fed going to sell the Treasury Bonds? Who is going to buy them and at what price?

Printing money (85 Billion / month) to finance war (1000 Billion /year) - that never worked out in history, we will see what happens...

Tue, 10/29/2013 - 16:24 | Link to Comment saveandsound
saveandsound's picture

Of course, the question does arise, why are the defaults continuing.  THAT is the core issue.  Not the Fed's printing.  Answer: because economic activity as a whole is in decline.

Hmm, could the drop in money velocity and/or economic activity be an (unintended) consequence of rising prices but stagnating income? One can't buy as much as one was used to. To less income could also explain further defaults.

At the moment I don't see an end to that. However, if we would really see a turnaround, money velocity catches up, economic activity stays where it is, what happens then? Is the Fed going to sell the Treasury Bonds? Who is going to buy them and at what price?

Printing money (85 Billion / month) to finance war (1000 Billion /year) - that never worked out in history, we will see what happens...

Tue, 10/29/2013 - 17:16 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

The decline in economic activity is the worst of the situation.  It's forever.

There was no money when mankind first appeared.  Then there was an invention of money.  And then an invention of a science to talk about the invented parameter called money.

None of it is real.  The decline in activity likely traces to the erosion of EROEI in getting civilization's lifeblood.  Oil is real.  Its transportation energy isn't an invented concept.

There is no fix for this.

Wed, 10/30/2013 - 07:28 | Link to Comment Massholio
Massholio's picture

Bingo! Hello brother from another mother. I never understand why most ZH'ers can't see the big picture as you have summarized so succinctly. +1 for you!

Tue, 10/29/2013 - 17:18 | Link to Comment chubbyjjfong
chubbyjjfong's picture

I kind of get what you are saying Crash and thanks for portraying the info in simple terms. At least in the case of toxic mortgages, the capital was loaned into existence (added to money supply) in the first instance.  At present, If we add the fact that loss of economic activity and ZIRP has combined to slam the door on practically all bank lending we have a situation of having halted all money creation, ie no debt issue by banks as well as no future interest repayments (there are fewer and fewer loans to default on). Total society money velocity shutdown.

The printed FED money is just sloshing around the big banks, the FED and the stockmarket, doing nothing for velocity. I suppose it could be a non event during a hiccup in a free market in a vibrant world economy, but we all know it aint. The only money velocity it seems, is the elites spending their companies cash (as they are not investing in capex), on luxury travel, superyachts, high end realestate, and luxury cars.  That aint gonna do much for an economy for very long. Its up to the faith of foreign countries I guess. I think they are already seeing through this ponzi charade.

 

 

Tue, 10/29/2013 - 15:30 | Link to Comment TruthInSunshine
TruthInSunshine's picture

@Crash. You are very and severely incorrect in your summary conclusion that Fama is correct in saying that "this is a non-event" or whatever rubbish phrase he used.

1) When the Fed buys tnotes in the secondary market, it is effectively printing fiat notes (aka "dollars") & exchanging those for the face value of the tnotes (plus some fat commissions to the primary dealers).

So, the Fed has actually just conjured/printed fiat dollars from thin air.

2) At this point, the tnotes purchased by the Fed are entered as an "asset" on the Fed's balance sheet, irrespective of the maturity date or coupon.

3) The U.S. Government (via Treasury) already entered the tnote as a "liability" on its balance sheet at the time the tnote was sold to the first buyer at auction, before it was flipped to the Fed.

4) At this point, the fiat notes created by the Fed which it used "to pay for" the tnotes it is "buying" are all debt instruments (each & every dollar), that the U.S. Government (i.e. Taxpayers) now are proportionately indebted by, plus the amount of interest component that will be due the Fed, on an ongoing basis, until the tnote purchased reaches maturity, at which time the accumulated face value plus interest component based on the coupon must be "repaid" to the Federal Reserve (which never actually loaned anything other than cover for Congress to create inflation and coin money - under delegated authority) to the U.S. Government in the first place, other than future debt, with a debt booster (i.e. the interest component), to depreciate future living standards of the citizenry by diluting their purchasing power AS REFLECTED BY THE REAL VALUE THEY WILL RECEIVE FOR THEIR LABOR, SKILLS, RISK CAPITAL, ETC., IN THE FUTURE.

This is a true deb based monetary system, levered up multiples via other shenanigans we won't discuss at this point, that a nation has when its official and monopoly enforced exclusive "currency" is not tied to any single item of actual value.

It's the VERY DEFINITION OF A PONZI SCHEME.

It is NOT A NON-EVENT.

Tue, 10/29/2013 - 15:45 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Truthguy, it is as I laid it out.

You do add one item in support of my description -- the interest on the Treasury instruments in the Fed inventory.

We've already heard that this supports what I said -- when Treasury makes a payment to the Fed for interest on the bonds the Fed holds, the Fed sends the check back to Treasury.  They have no need for that interest payment so they refund it to the taxpayer. 

They'll do the same at redemption time.  The phrasing will be that Treasury sent them a check for the various instruments that matured that month.  The Fed "refunded that money to the taxpayer."   Given that some of these instruments are somewhat short duration, I am confident it has already happened on several occasions.

The Fed doesn't just refund interest.  They are refunding the redemption cash, too.  Already happening.  In fact, it's even trickier.  The MBS interest is being used to buy more MBS.

Tue, 10/29/2013 - 15:48 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

You are so wrong I don't even know where to start.

This is why the Fed needs a full audit, so the public like you understand what is happening at the Fed, and why their balance sheet expansion is so dangerous to our monetary system.

Tue, 10/29/2013 - 15:56 | Link to Comment Tinky
Tinky's picture

At the risk of using technical language with which you may not be familiar: Bollocks!

Tue, 10/29/2013 - 16:17 | Link to Comment macroeconomist
macroeconomist's picture

Finally someone that understands monetary system!! Thanks Crash, never mind being attacked fiercely, that is standard here towards any view that is not fearmongering about the never-coming inflation :)

Wed, 10/30/2013 - 05:26 | Link to Comment Squid-puppets a...
Squid-puppets a-go-go's picture

i asked this question above essentially, but it bears reasking in the context of Crash's clarifications here:

whats the motive for the fed to provide these refunds to the treasury?

i mean, if it were a govt entity, sure, but its private, and why would the shareholders of the Fed not keep all that filthy lucre for themselves? 

 

Wed, 10/30/2013 - 15:19 | Link to Comment TruthInSunshine
TruthInSunshine's picture

So they can fool lemmings into believing that they're a benevolent entity acting for the better interests of the American Citizenry, via the use of a token & illusory "refund" of x%, while the funnel 100x that amount to the private banking interests whom they really represent.

Wed, 10/30/2013 - 17:34 | Link to Comment Arbeit_Macht_Frei
Arbeit_Macht_Frei's picture

Crash, your analysis is in alignment with what I've thought for a while.  My only question is what is all this song and dance about austerity and paying off the national debt?  Why not just continually create money at the rate it is destroyed via defaults or at the rate the government spends it on internal government programs, even the war machine if the bombs are US made.  As long as the dollars are being spent internally what’s the consequences?

Tue, 10/29/2013 - 15:26 | Link to Comment newworldorder
newworldorder's picture

CrashisOptimistic:

 

You have made a number of profound observations. The current "digital $$ financial game" has replaced the traditional market based economic system of demand, production and consumtion financed by saved capital in need of investment opportunities.

 

What the professor is describing is a financial system that provides world wide liquidity as needed, in whatever amounts needed, almost to any entity that comes under the purvue of the FED. Their purvue is quite extensive. It includes the US Federal Government, the 50+ TBTF banks worlwide as well as other Country Central banks. It is desinged to pump/replace liquidity that was Flushed with Lehman, Housing, Maiden Lane, etc., during 2008.

 

Consider the following ways the FED provides liquidity. (Not a comprehensive list)

- Interest Payments on excess reserves.

- Interest payments on actual bonds to those that hold them

- Almost 0% loans to member banks through the FED discount window operations.

- Unlimited purchases of new government securities up to whatever shortfall tax funding the government needs.

- Treating US based branches of Foreign TBTF banks the same as US Banking institutions.

- Dollar currency swaps thereby providing both a bid and a floor for other Global currencies.

- Purchasing any existing bonds, banks and other sovereigns want to sell, adding liquidity to the large banks for them to trade for their own accounts in precious metals, stock markets, bond markets, (buy and keep the spread,) when they later sell to the FED.

- Purchasing MBS at top dollars and alleviating any losses banks may have taken with the collapse of the housing market loan base,. Maiden Lane, etc.

 

There are three threats to their current and continued behavior into perpetuity.1. Commodity prices (food, energy, precious metals) as set by those producers outside the FED controlled Financial System.

2. World wide labor pricing which it does not directly control. See strong labor countries; France, Germany, Swiss, Scandinavian Countries. Others?

3. Faith in this new and yet unannounced financial system. Will everyone involved go along and for how long?

 

Think of all this as a new, world wide Financial Faith System. One in which the old laws of production economics have been replaced by a Centrally Controlled Digital $$, Modern Monetary Theory.

 

Since I and most of us are not Ivy League Economists, you have to tip your hat at the sheer audacity of these Academic Economists to try to rule the world through dollar fractional reserve banking, Central Banking AND debt based lending.

 

Given the expectations of the "give me free stuff, non producers" everywhere, can you blame them? After all current civilization and worldwide Peace are at stake.

Tue, 10/29/2013 - 16:58 | Link to Comment TruthInSunshine
TruthInSunshine's picture

@Crash - the Fed isn't redeeming ANYTHING, EVER. They merely facilitated a scheme whereby worthless I.O.Us could be used as monopoly currency (enforced by the police/military apparatus) to steal present AND future items of actual, real wealth & value.

What the Fed did/does is create debt that is the obligation of the citizenry, present and future born, by "lending" nothing (I.e. Illusory "money credits" that are actually debt), that were produced by it at zero cost basis.

Theoretically, based on an entirely circular model, it's possible one could at least try to claim the Fed has a risk of loss if any particular tnote it purchased falls in value (as the yield on similar issuances move up) and is compelled to "sell" that particular tnote & "book a loss" on it, but even this is fiction since the Fed NEVER gave nor created anything of value in exchange for that tnote - ITS COST BASIS IS $0.

Tue, 10/29/2013 - 15:58 | Link to Comment Law97
Law97's picture

Fantastic comment.  Faith-based monetary economics replacing the old capital/investment economics of pre-2008.  What this means is that so long as the Fed maintains the illusion, they are more powerful than any government on earth.  The banks, through their central banker implementers, have finally succeeded in a near total takeover of the world economy that would make even Joe Stalin blush.  The power this gives them is immense; essentially they can reallocate trillions of wealth almost at will ... so long as they maintain the illusion of control, competence, and benevolence ...

Wed, 10/30/2013 - 05:34 | Link to Comment Squid-puppets a...
Squid-puppets a-go-go's picture

but its not sustainable, because no-one knows what the fuck the laws or rules are anymore

why does a market rise on bad news? why does it fall on good news? why is evil behaviour unpunished, and ethical behavior disadvantaged? This new  replacement of Captialism by Digital Deficitism will be increasingly hated and opposed because it is chaotic, unjust, and de-incentivises productive and efficient behavior

of course investors will start to gravitate towards any alternative  - and the stampede is just starting

Tue, 10/29/2013 - 16:18 | Link to Comment Tall Tom
Tall Tom's picture

New World Order writes,"Given the expectations of the "give me free stuff, non producers" everywhere, can you blame them? After all current civilization and worldwide Peace are at stake."

 

I thought I had heard it all. But this one takes the cake...

 

After all currunt cilivilization and..Worldwide Peace...oh my...they are at stake?!? Egads!!! Oh no!!! He might just have well as wrote that we have to do it...for the children...er...which means to the children.

 

LMAO. So the EXCUSE FOR BEING CRIMINAL AND RUNNING A PONZI IS EXPEDIENCE?

 

First there is not Worldwide Peace nor has there EVER BEEN under the auspices of the Current "Civilization", the current paradigm.

 

The Criminal Paradigm NEEDS TO END.

 

What a bunch of apologist claptrap!!! LMFAO 

Tue, 10/29/2013 - 17:13 | Link to Comment newworldorder
newworldorder's picture

RE: Tall Tom,

On occasion, I do forget to put my "sarc comments" on and for also thinking that readers will appreciate some nuanced comments as well.

- You are right, there has not been "peace" in in much of the 20th century and the  1st decade of the 21st. My definition of peace is the kind of absense of war that will end the human race. I do however understand your definition.

- As to your comments on the expediency of the running a ponzi and the need to end the criminal paradigm. I say BRAVO to you - it does need to end. You and I however are not going to end it by posting on ZH. There are not enough of the 330+ million of us who either understand what is going on, or are in a position to challange the powers that be.

My comments are not an endorsement of the status quo, but rather an acceptance that the FED will print to infinity or unless stopped by external monetary forces. They will print because they have no other choise. Systemic economic collapse is not a willing option for them or the debt based world wide economic system.

Tue, 10/29/2013 - 16:25 | Link to Comment Tall Tom
Tall Tom's picture

We are just oing this for YOUR OWN GOOD. And you are not appreciative? How dare you criticize our Ponzi Scheme when you benefit???

 

Who can blame them for running a Ponzi Scheme? They are Saints I tell you....

/sarc

 

LMAO Thanks for the laugh, newworldorder. Actually I needed the laughter.

Tue, 10/29/2013 - 16:37 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

This Fed Banksteropoly game has more twists & turns than the ones we can come up with when we start changing the rules to our Saturday nite Monopoly game (which involves "Alcoholically-assisted creativity").

If we don't choose to end or Reset our game, it would go on all night. It's not what I'd like to do all night.  It used to be something else, but now it involves zzzzzz's.

We're hedging and diversifying accordingly with our assets*. 

* Plow savings and investments into 1/4 Cash+PM, 1/4 Real Estate, 1/4 Stocks, 1/4 Bonds.  Where Stock+Bonds = Paper. 

The PM is to offset Paper (in our Rock, Paper, Scissors game**), and Cash is to weather storms + snap up deals. 

** Rock = PM.  Paper = Paper assets.  Scissors = Taxes.  You all know how this is played, right?  :-)

Here's our dog-eat-dog lifestyle Pareto:

   1. Stay healthy & alive.  Bark less, wag more.  Fetch things for Masters.

   2. Keep up monthly cash-flow to pay bills & avoid draining savings or retirement

   3. Save chew-bones* for rainy day.

   4. Hide chew-bones in different places, near and far.

   5. Roam about, sniff out deals & treats, chase cats.  Have fun with Pack.

   6. Go to #1.  Else roll over.

BTW, every now and then shit happens, and you get doo on the Paper.

In the New Normal, dealing with the challenges of #2 seems toughest.  The rest is a mere Allocation game of the Pie with 4 quarters.

Tue, 10/29/2013 - 14:11 | Link to Comment natty light
natty light's picture

Give me a few sheets of those Ulysses S Fucking Grants as they come off the press and enter a like amount on the Fed balance sheet; it would be a neutral event, right? It would benefit my local economy.

Tue, 10/29/2013 - 16:11 | Link to Comment Wyatt Junker
Wyatt Junker's picture

Indeed.  It is all about THE BIG and BIGGER the BETTER.

The Fed is the Shaquille O'Neal-sized magnum super sized XXL condom for fiscal(Washington) recklessness. 

And that condom gets s-t-r-e-t-c-h-e-d over Obama's Washington pecker for MOAR foodstamps and TBTFs. 

And we are the Olson Twin about to get plowed into.

Tue, 10/29/2013 - 13:09 | Link to Comment thunderkiss
thunderkiss's picture

Everyone, save that clip.  That one is a keeper.  I can't believe how clueless he sounded despite being a Nobel Prize winner.  But then again, Obama won one, so fuck it, nevermind....

Tue, 10/29/2013 - 13:36 | Link to Comment JerseyJoe
JerseyJoe's picture

It almost as good as Krugman's Trillion dollar coins.  

Tue, 10/29/2013 - 13:49 | Link to Comment tdogg
tdogg's picture

I don't know .... i though he was kinda cute

Tue, 10/29/2013 - 13:55 | Link to Comment kchrisc
kchrisc's picture

You forgot 'theft.'

Wed, 10/30/2013 - 02:48 | Link to Comment MythicalFish
MythicalFish's picture

I sincerely hope Janet Yellen is on the same page as Fama. If it's no big deal, let's sell it all (or "square it") once we have a 200+ payrolls print again. Is it on like Donkey Kong?

Tue, 10/29/2013 - 12:57 | Link to Comment brettd
brettd's picture

Or---why not treble the size?

Tue, 10/29/2013 - 13:02 | Link to Comment EscapeKey
EscapeKey's picture

Oh, they will - eventually.

And when it happens, it won't be a big deal.

Tue, 10/29/2013 - 13:18 | Link to Comment NotApplicable
NotApplicable's picture

Yep, it will be "priced in" long before it actually occurs. That way everyone sees it as a "no-brainer."

Directed history is a conditioning process.

Tue, 10/29/2013 - 23:32 | Link to Comment HardlyZero
HardlyZero's picture

What I got from the PhD explanation...and between the lines.

 

1. Billions is so passe and its not a big deal.

2. One day it might be, but now its not.

3. If they started printing trillions it might not be a big deal for a few minutes, and then, it would be a big deal.

Nice tautologies from the PhD.

How do these help, its like saying there is nothing in the new healthcare law that changes any existing policies...but MILLIONS of health contracts will be lost.

Its like what is "IS"...word/legal games.

Anybody heard of CONSEQUENCES...I guess its just a liberal mindset to not notice outcomes or consequences of stupid laws and stupid actions.

Bread and Circuses.

Tue, 10/29/2013 - 13:00 | Link to Comment ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

Tradition.  Same reason the Fed does anything.

Tue, 10/29/2013 - 13:11 | Link to Comment kaiserhoff
kaiserhoff's picture

It's a mensch thang.

  Soon to be a yenta thang.

Tue, 10/29/2013 - 13:27 | Link to Comment sbenard
sbenard's picture

You read my mind! I had exactly the same reaction! If it's no big deal, then there is no reason to continue it! Great minds think alike!

One of the two following must be true:

1) After nearly five years of QE, it worked, so it is time to END it!

or

2) After nearly five years of QE, it has failed, and since it's worthless, it's time to end it!

Either way, it's time to end it!

Tue, 10/29/2013 - 15:13 | Link to Comment saveandsound
saveandsound's picture

Define "it worked"!

They are using the freshly printed money to buy more Treasury. And the goverment spends the money on the ongoing war. Serving special interest groups since 1963.

Tue, 10/29/2013 - 13:28 | Link to Comment VD
VD's picture

because they keep doing it all the time it becomes no big deal. get it?

Tue, 10/29/2013 - 13:29 | Link to Comment Nothing but the...
Nothing but the truth.'s picture

Quite clearly a Nobel prize is not what it used to be , if a Zombie like this has one.

Tue, 10/29/2013 - 13:29 | Link to Comment rubiconsolutions
rubiconsolutions's picture

< ------ Cracker Jack prize

< ------ Nobel prize

Tue, 10/29/2013 - 13:35 | Link to Comment Hal n back
Hal n back's picture

great strategy though-buy LT debt and sell ST debt-as we are bottoming in interest rates.

 

I wanna be around to pick up the pieces when rates go up and they have to rollover almost everything at higher rates--which incidently tells us they think they can keep rates low for a while yet.(I thought I could carry a 180 yard fairway wood over water to the green  the other day, but I digress)

Think being the operative word for them. 

 

Tue, 10/29/2013 - 16:54 | Link to Comment Tall Tom
Tall Tom's picture

They did the same in the 1960s. This is nothing new.

 

They were doing everything they could to maintain Bretton Woods and keep World Reserve Currency Status.

 

What happened to the price of Gold at the beginning of the 1970s? Did it explode from $35 to $200?

 

History does not repeat but more often than not it rhymes as we fail to learn the lessons of past "mistakes"

Tue, 10/29/2013 - 13:44 | Link to Comment Polonius
Polonius's picture

I'm a red pill kinda guy, so don't shoot me.  But maybe we need to re-evaluate the situation?  As long as this rotten rigged bank-centric ponzi scheme for a monetary system exists perhaps we should cheer for central bank buying of as much government issued debt as possible (how much is explainned below).  First of all, the debt owned by the central bank is issued at an effective interest rate of zero since the interest income is retured to Treasury.  Secondly, it lays bare the whole scam of income taxes.  Think about it, if Treasury can issue zero interest debt to the central bank why suck money out of the economy via income taxes?  After all, that debt owned by the central bank can be written off at any moment.  If we had a freely trading unrigged silver/gold market without taxation, if the mint were opened for free coinage to all bullion supplies, and silver/gold were allowed to be used as legal tender then why should we care how much debt the lousy central bank buys?  The more the better I say.  And the more they buy the closer we get to point where people understand that income tax is only extracted to support fiat as legal tender and provide the illusion that taxation is necessary to pay for government expenditure.  When the money is issued by the government, which admittedly it presently is not except for currenncy and Treasury debt issuance, then there is no possibility of outright default, only stealth default by way of currency devaluation.  Which is why the silver/gold market needs to be freed up, re-monetized and allowed to trade without distortion from fractional reserve accounts, derivative synthetic supply or market rigging interference from the banks.  The silver/gold price would then be the barometer guiding how much debt Treasury can issue into the economy without destroying the currency.  I am NOT an MMTer so please don't use that argument against me.

Tue, 10/29/2013 - 14:09 | Link to Comment Almost Solvent
Almost Solvent's picture

provide the illusion that taxation is necessary to pay for government expenditure.

 

Exactly. The USD has no "value" other than what people assign to it.

 

  

Tue, 10/29/2013 - 14:40 | Link to Comment geno-econ
geno-econ's picture

If it's no big deal, then tapperig should be no big deal----however the stock market thinks otherwise. So who is correct ? One thing for sure, is if the stock market goes down , it will be a big deal ---and the Fed knows it !

Tue, 10/29/2013 - 14:47 | Link to Comment Bennie Noakes
Bennie Noakes's picture

Sure! I can quit smoking/drinking/snorting coke/mainlining heroin any time I want. It's no big deal!

Tue, 10/29/2013 - 14:43 | Link to Comment McRocket
McRocket's picture

'If it's no big deal why do they keep doing it?'

Exactly, and why do the markets plummet whenever there is even a hint of tapering?

Come on now Prof...think.

Tue, 10/29/2013 - 15:19 | Link to Comment Loucleve
Loucleve's picture

They must maintain the illusion of normalcy, and all the talking heads understand this.

Unfortunately, if after $4 TT economic activity hasnt picked up by now, it never will.

And it goes without saying that economic activity will slow considerably when and if they do taper.

Check mate.

Tue, 10/29/2013 - 15:26 | Link to Comment jballz
jballz's picture

Supposing me and you ten other guys formed a committee, and after much consideration decided the best thing we could do for the economy is give 85 billion dollars a month to companies we own and control.

How long do you think it would be until you and me and the ten other guys decided this was no longer a good idea?

Qeternity, bitchez.

Til the wheels come off the crazy train.

Tue, 10/29/2013 - 17:03 | Link to Comment Serfs Up
Serfs Up's picture

Ha ha!  

fama got it all wrong.  He's clearly describing Operation Twist when asked about QE and he evon got that wrong.

The Fed never "creates short term debt" to exchange for long-term assets.  Once upon a time, way back in Operation Twist, it did sell short term treasurys to fund purchases of long term treasurys but that's about it.

QE is simply creatingt electronic currency and using that to buy MBS and Treasury paper.  Period.  That should have, if anything, a suppressive effect on interest rates, not the opposite as Eugene has suggested.  

What an idiot!

Good luck students of Dr Fama - you will have to somehow undo the damage later in life.

Tue, 10/29/2013 - 19:03 | Link to Comment Notarocketscientist
Notarocketscientist's picture

You see --- to get the Nobel Prize --- he had to sign an agreement stating that he would support and defend any Fed policy --- no matter how STOOOPID it made him look.

i.e. he agreed to whore himself for glory (and money of course)

 

Tue, 10/29/2013 - 19:36 | Link to Comment roadlust
roadlust's picture

Because they gotta do something.

Even if what they're doing is largely inconsequential, they are still tasked to TRY to do something with the tools they have. 

The economy sucks because of the trillions sucked out of middle America by the market implosion.  That will take years to bring back, regardless of what the Fed does.  They've been tinkering around the margins of that disaster. And while they've managed to "save" the Ponzi scheme known as the US stock market (and re-inflated some RE markets because of the re-inflation of stock option valuations) we're still stuck in the depression caused by gigantic, unregulated Wall St. losses.

Wed, 10/30/2013 - 01:28 | Link to Comment Assetman
Assetman's picture

Eugene Fama is at least partially right--- it's no big deal from a balance sheet perspective.

It's a really big deal if the goal is to influence behaviors among capital markets participants (i.e. dump short term credit, buy long term risky assets).  In essence the Fed wants you to "buy moar stocks", because academic research supports a causal link between stock prices and nominal economic growth.  In order to do that, yields are being suppessed across the yield curve.

Many members of the Fed Governors (Bernanke and Yellen the most notable proponents) actually believe this will work, as long as they keep  on printing and move these asset values higher.  So far, the evidence this is actually "working" is mixed, at best.

But it doesn't mean the Fed won't keep on trying...

Wed, 10/30/2013 - 01:42 | Link to Comment Oliver Jones
Oliver Jones's picture

It's tradition...

Wed, 10/30/2013 - 03:28 | Link to Comment Offthebeach
Offthebeach's picture

It's like the old Mesopotamian hydrolic dictatorships that controld the massive irrigation systems. Rlease plenty of water in the winter when there are no crops and none in the summer when the crops are planted. It all balances out.

The Fed has been jerking, inflating, collapsing the economy for 100 years.

As Billery Clitton said about the dead in Bengazi, what difference does it make?

Forward American Soviets! Progress Through Peoples Monetary Science!

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