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Santelli Stunned As Nobel Winner Fama Explains Fed Unwind "Is No Big Deal"
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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Fama kept his cool. Santelli not so much, more like rude, interrupting, arm flapping hysteria typical of megla-maniacal TV celebrities.
If we all keep pretending, everything will remain calm until long after y'all begin you dirtnaps. Chill out people, life goes on.
The US can't seem to taper when it comes to QE, food stamps and war.
I may be mistaken but it all seems like a wilder replay of Johnson's guns and butter policy of the 60's when De Gaulle smelled a rat and started demanding gold for his dollar accumulations.
Viet Cong were making millions of US dollars out of the black market and drugs sales in South Vietnam.
Sent the dollars to French banks in exchange for gold
Used the gold to buy weapons from China.
This is where the big demand for gold in France came from.
"They;ve been issuing short debt to buy long debt" and it's no big deal. Uh, begging the Colonel's pardon, but doesn't that mean spending now and "paying" later?
SO....the whole spiel of QE is a kind of nothing activity; neutral neutered debt being swapped like in a turkey shoot; where you kill fat "tims" or neutered turkeys. You take them out, the old tims, all the while you sell cheap young tims for the next shoot.
All the Bernanke has been doing is spending trillions of bullets to shoot down neutered turkey. No big deal. "I sell one and I kill one. My turkey farm just gets bigger. I'll be switching cumulative 4 trillion soon..."
How come ZH and the financial world gets all excited about turkeys being shot with thanksgiving around the corner; just a month away?
Janet when do I get my neutered turkey?
So simple when explained by the horse's mouth of Fama thoroughbred.
When the number reaches 40 Trillion it will still be no big thing; stands to reason!
Many seem to maintain the misapprehension that the integrity of our "system" is based upon money when it is actually based upon trust. In that regard, trust has been collapsing for some tme. Money just seems to be the easiest denominator and obscures the vision of those except the most discerning.
Waiting to pick up the pieces after an economic collapse is a fool's errand since the real problem is elsewhere. That is, if we really care to have a functioning society.
Trust creates liquidity and expanding credit. Not the other way around.
The difference between the usa and somalis is trust that pieces of paper mean something. Contracts, credit money, etc.
Rick almost blew a gasket LOL.
time to de-bunk these pseudo scientists, and charge them with crimes against humanity....
especially the ones following keynes.... (which is probably 90%)
fucking rats
Wow.
Period.
Nobel to Obama for Peace. Nobel to Fama for Economics.
Bizarro World for sure.
I do believe Rick had this guy on just to laugh at him. Exhibit A, if you will. Looked like he was ready to start chuckling during the into.
S&P500 up 5.3% in October - team bullshit (Fed, US Gov, Global Central Banks, Banks, MSM) is pulling in the bagholders in droves.
BUY MOAR STAWKS!!!!
The recent move higher in stocks from the debt ceiling issue has to be because traders are expecting an increase in QE from 85bil. If the Fed stands pat tomorrow, I think we will get a bloodbath. Either way, I think we sell off post Fed minutes.
Expectation management is the name of the game. The Fed has been trying to say in hindsight it appears QE had no significant effect on interest rates or the economy. . The goal is obvious. If QE had no significant effect on interest rates or the economy then unwinding it won't either.
The only way unwinding can work is for everyone to believe the entire QE experience was wasted effort. Very smart actually. If they can really change expectations this way.
So we should expect that no, the banksters really didn't buy all those houses and artwork, and cars, wives, etc with those bonuses that didn't happen?
Lol. That was TARP. We just barely missed martial law on that one lol.
Salacious Crumb responds to Fama:
http://www.youtube.com/watch?v=EMnSpd0XRmo
HOLY FUCK! As a trained economist, I have to ask, this guy WON a Noble Prize in Economics?
Fine, from now on, I'll just puke up shit and serve it to people. I'll be a shoe-in for next year's Nobel prize.
Fama does have followers amongst the media guru crowd : Cullen Roche of BI said this about FAMA interview :
My respect for Fama went up by about a million fold after watching this interview….
And he wasn't being sarcastic!
Read more: http://www.businessinsider.com/fama-to-santelli-qe-is-a-neutral-event-2013-10#ixzz2j8e0eGkT
Most certainly. Make sure your thesis is full of obese language, bloated windbaggy vageries and complicated multiple-clause run-on sentences interspersed with random mathematical gibberish. As long as your up-chucked shit is presented in the form of mathematical symbols, I see no obstacles to a nomination.
Good luck.
Joseph Stiglitz (sp) supposedly is responsible for my favorite "economist" joke:
"If you took all the world's economists and laid them all end to end
...
it would be a good thing!"
If you took all the economists and laid them end to end they still wouldn't reach a conclusion.
is this a friend of paul crookmann???
Fuckers like this belong in a glass jar in a museum.
As a species, can we please move on to bigger and better things?
like we're supposed to listen to some old fucktard douchebag from the U of Chicago who got a fucking medal from the same assholes that doled them out to "alien invasion/trillion dollar coin" Krugman and the "dumbest Marxist in the room" obombya???? LOL
All the left does is create awards to give to fucks like this guy to create a false sense of importance or credibility about them...it's like laundering scumbags so that they come out on the other side looking clean and proper. Like giving Clinton the father of the year award. LOL
oooph...I just vomited a little in my mouth there, sorry...
Friedman would bitch slap this fucker within an inch of his life.
Wow. $4,000,000,000,000 is no big deal.
Nigga Please!
http://www.youtube.com/watch?v=ME4vyCckDQQ
When the market disintegrates and the economy collapses, I foresee the phrase "...kind of a nothing activity" getting A LOT of mileage. Prepare to see Fama resets often. Of course, if there is any justice left at all.
Unversity of Chicago... That about says it all, they follow the Clowerd-Piven model
The nature of CNBC interviews is that they are too short to really catch someone who is totally wrong. Fama is technically correct, in that it might be a non-event if you sell into the short end, while buying the long end of the curve. He is also baffled by why short rates are down even though they are supposedly being sold. What he completely misses is that the Fed cannot issue short term treasuries! Duh! There is NO selling of short term treasuries to offset the buying at the long end. If the Fed was supposedly selling the same amount of short term teasuries as it was buying on the long side - then the Fed balance sheet would not be growing! That is the question Santelli missed.
Exactly, and also when do you have start giving away shit because the FED's balance sheet is too large for the underlying assets.
Look to them to give away Yellowstone nat park.
Does this guy thinks the FED is doing a calander spread? What kind of bullshit answer was that? If he just said the FED will never collect on their ballance sheet that would have made more sence.
Neutral effect?
I see.
Getting fisted is "neutral" by the Fed I suppose, if there are exactly the same strokes going in your rectum as coming back out.
Got it.
... and, above all, pay no attention to that man behind the curtain.
In HIS IMAGINARY WORLD he is right.
Generally, this is how people sound when they have not consent of physical reality and of the underlined (natural) processes controlling it.
In addition if he is confused by several questions I am wondering what will be when feedback relations between money pressure and resistance, expressed via differential curls in multiple dimensions, start to materialize out of (apparently) nowhere. Probably then the solution will be very simple: changing the model. And go after that explaining people who lost their wealth that the world is a wonderful place and they should not strive for a sound (not predatory) money system.
Shiller wins a Nobel prize for pointing out bubbles that co-prize winner Fama says do not exist.
The Nobel is a prize for geniuses which is awarded by idiots.
Again, voted Poor for not putting "Nobel" within quotes.
This is a joke right? That idiot does not actually have a PhD does he?
Senility anyone?
SEARED
Dissociated
Angry
Heartless
Ugly
The countenance of someone who has or will do something terribly wrong
Another take on this subject:
http://www.businessinsider.com/fama-to-santelli-qe-is-a-neutral-event-20...
For the life of me, I can't believe I am so stupid and others are so brilliant.
For those who are fond of adwalls and followers of Cullen Douche...
Now I'm no mathematacian but how is what the fed is doing neutral when the direction of the debt only goes up.
So if I hit myself in the head with a hammer repeatedly and start speaking a bunch of nonsense gibberish and bullshit I'll get a Nobel Prize?
The Nobel Prize committee has REALLY lowered its standards.
actually I think the OP misunderstands the body english, so to speak.
the reason why he gives that nonchalant answer is because, in his world, everybody knows there is no unwinding in the future. Japan leapt off the cliff and the others all follow. It simply won't happen in any of our lifetimes.
The reality is that countless long term farmers in North America are giving up and selling the farm because the cost of grains has gone sky high but the price of their produce is the same. I spoke with a couple hog farmers and dairy farmers just this week. There's a reason countless long established farms are up for sale. Yes, there is a market for farms but when you actually speak with the men who run the farms they will tell you that they've been losing money for the last few years trying to feed their livestock on more expensive grains and selling at the same prices they got paid 25 years ago. They cannot pass the increased cost of production on to the consumer because the consumer cannot afford to pay that. Trillions of Dollars did not reach the 99% and the 1% don't consume what is necessary to keep the food production going.
That's what trillions of these "no big deal" Dollars have done over the past 5 years. Our food chain is disrupted and we better prepare for some very lean times ahead. Get to know your local small farmers and be prepared when they ask for anything but paper money in exchange for their eggs, meats or dairy. Suppose you could be a vegan and starve yourself of the necessary protein and calerories required to keep your engines going.
Wait and see, folks. Things are falling apart everywhere.
Guys like Fama and Bernanke are complicit. Fuck them.
Guys like this idiot can't even fathom the reality that is coming down the pike! You can tell this guy is a typical Obama-ite by the b.s. and double speak that flows from his mouth. Fama is a perfect example of how the Nobel prize has been dumbed down and become political. I can't imagine two more worthless human beings. Reality will bite hard on this one!
Big Farma wins, Mom and Pop lose (again).
"it's no big deal"
that must be why the bond market had a conniption in May when the Fed merely suggested they might slow things down by $15-25 billion a month.
Mr. Fama is probably a smart man, but he has clearly never invested or traded real money in his life.
Yet another highly intelligent, very knowledgeable person, devoid of any imagination to see the real world effects of the policies he endorses; vetted and groomed for his position. Definitely top notch lapdog, I mean Nobel, material. Maria, Maria, here's one for you to interview!
Well, Dr. Fama, I am sure you have enjoyed your stays at the annual Bilderberg conferences! What was your payoff, a Nobel?
How is buying $85T a month in incomne-reelated assets putting upward pressure on IRs? Just asking?
FAMA is running a late bid for Fed Chairman?
I think the professor is right. Why would they ever unwind that? It is like saying to a bunch of counterfeiters driving around in luxury cars, with their houses full of the most expensive stuff: How are you ever going to unwind that?
The counterfeiters will answer: 'it won't be a big deal'
Human action: people do stuff not in order to undo it. They are not going to unwind. They own the assets, that was the goal. The others have the fiat.
This guy thinks it is a zero sum game and the Fed and the Treasury are the only players.
Out of touch with reality - he needs to have some 'skin in the game' as our president has said.
Trade some of his ridiculous University of Chicago pension for some Treasuries - he might think a little differntly then.
His economic world is derived from and insulated by the warped space of the dimension of 'University'.
Another plane of existence.
University of Chicago professors do not have pensions; they have 403bs (which are just like 401ks).
He has skin in the game. He is an idiot who has skin in the game.
When the Fed starts to taper, does the Fed not sell these securities on the open market?
Tapering means buying less assets, not selling them. Why do people always think the gvt makes radical changes?
Why do people use the term gvt when speaking of a private bank for banksters?
Fama seems not to have read Thornton, Dupont de Nemous ins 1810 and 1805 respectively. Nothing activity, I mean please, Fama read you classics.
The problem is that Santelli is asking one question and Fama is answering a DIFFERENT question.
Santelli is asking what happens to the economy when the Fed unwinds these holdings, which means SOMEONE else has to buy them.
Fama is talking about what the sale means to the Federal Reserve. Fama describes in terms of holding the treasury notes to maturity, getting its investment back from the treasury, and striking the Fed books as 'even'.
Fama does not address the massive GOVERNMENT ELEPHANT in the room or how that ELEPHANT will require FEEDING when the Federal Reserve quits handing it 'FOOD'!
pulling capital back in, that's funny rick, unfortunately never going to happen
Officer Barbrady would be proud.
The Economists of today are not thinkers. They are essentially vapor-head cheerleader who's job is to look smart and give people confidence in the system. Even while the system kicks them in the nuts and steals their wallet.
You can't fix stupid.
Senile dementia eventually gets everyone. Fama is a victim.
At B School we were entertained by a professor with the story of Fama and a colleague walking across the campus at University of Chicago - "Hey look Gene, there's a $20 bill on the ground !"
Without even looking Fama responds: "There can't be. if there was, someone would have picked it up"
More like the Circle Jerk Prize, than the Nobel.
These assademics make my butt burn. The whole issue with LTCAm was just that acedemics do not know, like all the rest 0f us, what happens when complex systems rattle and hum. They then commence to break up. Duh.
Where is Druckenmiller's rebuttal?
He isn't talking about treasuries. He's talking about excess reserves.
The FED pays interest on excess reserves so they have effectively sold that as debt to the primary dealers.
When the FED sells a treasury bond now, it soaks up the excess reserves from a primary dealer.
When the Fed buys a treasury bond, it creates more cash which is mostly then deposited as excess reserves back at the FED.
They create short term debt (reserves) to buy long term debt (treasuries).
Point being the primary dealers are now getting paid interest just for existing. If they start reducing the reserves their play money dries up.
Postulate: All the above posters have missed the rally.
Postulate2: All the Below posters have missed the rally.
Economist......Professor..........Parasite. All interchangable.
Some critics argue that the prestige of the Prize in Economics derives in part from its association with the Nobel Prizes, an association that has often been a source of controversy. Among them is the Swedish human rights lawyer Peter Nobel, a great-grandson of Ludvig Nobel.[25] Nobel criticizes the awarding institution of misusing his family's name, and states that no member of the Nobel family has ever had the intention of establishing a prize in economics.[26]
According to Samuel Brittan of the Financial Times, both former Swedish minister of finance Kjell-Olof Feldt and Gunnar Myrdal wanted the prize abolished, saying "Myrdal rather less graciously wanted the prize abolished because it had been given to such reactionaries as Hayek (and afterwards Milton Friedman)."[23]
In his speech at the 1974 Nobel Banquet Friedrich Hayek stated that if he had been consulted whether to establish a Nobel Prize in economics he would "have decidedly advised against it"[23][27] primarily because "the Nobel Prize confers on an individual an authority which in economics no man ought to possess... This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally."[27]
Critics cite the apparent snub of Joan Robinson as evidence of the Committee's bias towards mainstream economics,[28][29] though heterodox economists like Friedrich Hayek (Austrian School) and Ronald Coase (associated with New institutional economics) have won.
Milton Friedman was awarded the 1976 prize in part for his work on monetarism. Awarding the prize to Friedman caused international protests by the left,[30] Friedman was accused of supporting the military dictatorship in Chile, because of the relation of economists of the University of Chicago to Pinochet and a controversial six-day trip[31] he took to Chile during March 1975 (less than two years after the coup which deposed the democratically elected president Salvador Allende). Friedman himself answered, that he never was an adviser of the dictatorship, only gave some lectures and seminars on inflation and met with many officials including the dictator Augusto Pinochet in Chile.[32]
Four Nobel Prize laureates – George Wald, Linus Pauling, David Baltimore and Salvador Luria – wrote letters to the New York Times protesting the award to Friedman in October 1976.[33][34]
The 1994 prize to John Forbes Nash caused controversy within the prize's selection committee because of his history of mental illness and alleged anti-Semitism.[35] The controversy resulted in a change to the rules governing the committee during 1994. Previously, members of the Economics Prize Committee members did not have any limit to their term of service; they now serve for three years.[22]
The 2005 prize to Robert Aumann was criticized by European press[who?] due to his alleged use of his research of game theory to justify his stance against the dismantling of Israeli settlements from occupied territories.[36]
Speaking of Hayek, seems the good prof. reads Road To Serfdom quite regularly and rejects Keynes. Where I worry is that those in acidemia do their calculations and believe them to be true. Since 1+1 does equal 2 they feel quite confident in their assumptions. Yet they have no model that predicts what I and billions of others might do once a wheel appears to be falling off.
I will agree with Fama and he is not an idiot. In fact most of you are.
What value of the US Dollar would be the Mathematical solution to all of the many equations that the Economists use?
ZERO.
What he said makes perfect sense if $ = 0. Think of the $ as a variable in every equation that incoprates Valuations, much like 'x' in other Algebraic Statements.
Note that '$' is never considered as a variable. But it is. It varies as the price of Goods and Services.
What Fama actually told you was that since $ = 0 then it is neutral. You can add or subtract 0 to any side of an equation and it does not change the VALUE of the Algebraic Expression. There are no imbalances when $ = 0.
Maybe it is that which you do not want to hear and which Santelli did not want to explore.
Yes. At this point the US Dollar is "Value Neutral" since it has a value of ZERO.
Yes. I must agree wholeheartedly with the Dali Fama.
Most of you are the idiots because you assign a value to that which has no value whatsoever. Instead of being Empiricists you have Faith in something that is not deseriving...at all.
Think about it.
Keep taking the pills.
And bitcoins have an ......infinite value?
If USD = 0 then the US owes no money to anybody and the external debt hangover does not exist; nor the derivative bets of banks "shadowed out", nor the fiscal deficit, nor the muni debt, nor the entitlement obligation to future generations.
How do you think those Oil sheikhdoms feel about their oil being valued in USD if $ = 0?
You have told all those monopoly players the US considers it can leave the game anytime and all those creditors can lump it.
Lovely line of reasoning PROVIDED the creditors accept it; as the US economy IMPORTS 7 million B/D of other people's oil and EXPORTS a lot of war material, hardware, software and agri products.
The world economy stops if $ = 0 is perceived as such in the market place.
Are you saying Fama will gladly pay 30 years from now, for a hamburger today?
Well that's different.
So, Santelli, let him say it.
Nobel Peace Prize. Nobel Economics Prize. Have they handed one out to a plagiarist yet?
Say, I like the way you think, Gene. Alright if I call you Gene? How would you like to be a senator, boy? C'mon ova here, bend over and touch your ankles for Senator Pervie.
Reminds me of this nobel prise winner getting schooled by Hugh Hendry.
http://www.youtube.com/watch?v=sAAnV-AolTI
Great video. If only people wouldn't doubt Greece it would stop interest rates from rising. What an idiot.
The cultures of the world are remnants of ancient theocracies. Science have a hard time triumphing over cultural habits. The world is not run according to science but culture.
A nobel prize in economics is no better than a nobel prize in masturbation, and less uesful.
Famas theories is about as exciting as a physicist claiming through theory that pigs can fly only if they eat enough calories in a short period of time.
If Fama however is right in theory, its still totaly uninteresting. If he can answer these questions then it would be different:
1. Why did the markets have to crash in 2008 if everything the FED have done post Lehman is "nothing activities"?
2. Who is benefitting the most from FEDs "nothing activities"?
3. Who where the ones responsible for the markets to fail in 2008?
4. Which messeges are the FED sending to the entire world population through it's "nothing activities"?
I could go on forever with these questions without getting a straight answer so I will just get to the point. The thing is, Fama is purely talking about theory which leaves out the most important parts in the equation - inequality of wealth distribution, moral hazard, missalocation of capital and the consequences this new normal will generate in the future.
Fama comes off as either naive or intellectually dishonest. Above market rates on reserves do have a real effect, and it is NOT neutral.
If he has been around for sixty years and won a Nobel he is NOT naive...
That leaves us the other option. As he has been personally awarded his lolly he is now obliged to the Oligarchy as a consecrated IMMORTAL.
So to please his fellow academics of the FED he steps up to first base and swings away in name of "Either you're for us or against us" solidarity logic. It is a matter of life and death to these guys and they are all in (and we with them like fish hooked on the bait).
As Kyle Bass has said, this market is no place anymore that really believes in Fama's original thesis for which he earned immortality : the efficient nature of markets...
Ain't that Ironic! As Kyle says, "these markets are now 100% inefficient!"
And Fama says : "Oh THAT, that's quite normal and you guys have not understood my spiel... Mr Santelli you have such a confused mind!"
Amen.
Borisov of ZH would never buy this guy's soiled underwear!
The MARKET is NO PLACE FOR YOUNG MEN or for anybody with less than a 100 million.
Rich just gets richer until they all hit the asymptote that killed that Brazilian Oligarch's billions.
Classic example of a NPP winner. Just look at the joke in the White House. The minute Santelli said this goober was a NPP winner told me everything this guy had to say...........nothing!
First Obama for peace, now Fama for economics ----
personally I think those prizes were actually code names for masturbation,
because both of those guys are practicing something --- I just don't know what it is.
Somebody forgot to take their meds. This guy is a fucking clown. ALL Nobel prize winners are fucking clowns.
Rick Santelli has no idea what he's talking about and never has. Yes, I know that the ZeroHedge brane trust think he's the second coming of Solomon, but in reality he's a Sophist of the third magnitude. Sorry to have to tell you but he's been wrong about everything, every day. But hang in there Z-Hedgers, the world as we know it is going to end Real Soon Now and then all your Physical Gold will be worth zillions.
--bks
Thanks so much LIESman. I'm sure your prophecy will come true. We will listen to your admonishment for the tautology that it is. Lest we have a 50 cent SAT wordathon you carrion laced prophylactic?
Gonna be a big deal when the real deal double-edged sword of truth and justice is used to capture and prosecute these evil war criminals. When one looks at all the years of all the crazy warmongering and now population reduction and elimination agendas in full swing, it is just sad and pathetic that so many keep playing the stupid games in the face of all the truth that is KNOWN by the majority of the world's people. Kinda like an antique play-act that never ends and only makes the viewer sicker and sicker to see it never changes. The audacity of pretending everything is OK and this nation has to go the exact same route as the last nazi Germany did, is just plain-Jane stupid!
Now, we have a nation of future war criminal soldiers that served in these warmonger rothschid wars for profit and deminishment of the American military services so as to completely kill America. When this country is crashed on purpose, they will have the records of every soldier that served where and exactly when with all the reports of the time also. After the babylonian minions have been used up to kill innocent Americans under martial law, then they too will be hunted down world wide like the last nazi war criminals were, and properly prosecuted for their war crimes also. Talk about a perfect set up. Worked pretty well, eh! Between the depleted uranium and vaccines, the American military is almost a thing of the past. The Hague war criminal culling after the next world war will finish every single one off.
Support the Troops!
http://www.youtube.com/watch?v=LxLxo4QpS8o#t=730
This cat was on the radio the other day and he explains well who exactly is responsible for all the insanity.:
http://www.noplaceforcorruption.com/
I feel like vomiting on that guys head. Disgusting f*cking dumb academic.
Aside from the headline grabbing quote, what Fama said is actually quite interesting. Short term rates went down despite what the Fed did (S-T rates should have gone up) . By this, he confirmed that the Fed has lost control over the the effect that they have over the yield curve and future rate guidance. (Where have we heard that before?) With respect to moving debt between short term and long term, Fama is quite right, ceteris parabus. However, the real question is that when the Fed starts taking in their short term debt and lengthening the maturity, who will take up that long term debt, and at what price? But we know the answer to that question. Either the Chinese buy (probably not) or the US Treasury's uses those newly minted Trillion Dollar Coins. :)
Santelli: "OK, if this [adding of money to the system] is so neutral, then why not just [keep doing it forever]?"
Prof: "There is so much confusion in your question, I don't know where to start to answer."
Unbelievable. Santelli takes egghead's belief, multiplies it ad absurdium, and egghead calls Santelli confused.
Wow. A PhD in something will not publicly state that you can't keep printing money forever.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it."
Well it's pretty good for the elite and their "news outlets", since they now have a tag team of nobel price experts (Fama/Krugman) to propagate their !@#% $%^) *&!"{@.
Fama is a bit Chancethegardeneresque
President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?
[Long pause]
Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.
President "Bobby": In the garden.
Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
President "Bobby": Spring and summer.
Chance the Gardener: Yes.
President "Bobby": Then fall and winter.
Chance the Gardener: Yes.
Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy.
Chance the Gardener: Yes! There will be growth in the spring!
Benjamin Rand: Hmm!
Chance the Gardener: Hmm!
President "Bobby": Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I've heard in a very, very long time.
[Benjamin Rand applauds]
President "Bobby": I admire your good, solid sense. That's precisely what we lack on Capitol Hill.
Chill, Al Gore got a Nobel prize too, it's passed out by leftist politicians.
He's a babbling moron from academia. With a phony made up Nobel in a non-science. From the oldest cenral bank in the world.
The Fed policy has no effect. It's a nothing burger. WHAT?
Blink, blink *licks lips*.
Guy looks like a fucking bald lizard.
It is hard to understand but Fama is actually right in one sense....... but it doesn't matter.
When long term debt bought with newly issued short term debt is held within the same system, in this case the Fed and member banks and the Treas, you can collapse or offset the two against each other without necessarily causing great disruption. It would be the equivalent of doing this. Say you had bought 10 year debt (Treas) with newly issued 2 year debt (Fed new money). Now assume the Fed decides to hold to maturity the 10 year, so it successively reissues new 2 year debt, effectively 5 times when paired with the 10 year debt. The 10 year debt matures. The Fed does not reissue the 2 year debt again and in effect what happens is that the funny money the Fed issued to support the debt dissappears. The balance sheet for the Fed absorbs both events equally.
But, while this works out for the Fed, it does not work out for the US Gov. To start with the 10 year debt that the Treas has to pay the Fed is "real money". The Treas has paid out the dollars it got from the Fed to finance the growing deficit in a zillion different ways...social security, medicare, defence spending etc. etc. When the Fed ceases to be a customer for new debt to rollover the ever increasing amount of Treas debt it is the TREASURY that has a real problem. They have to find a new customer for that debt.
That becomes the real problem. The Treas will not be able to sell roll over debt at anything like what the Fed is happy to purchase it at. The Fed is doing the Treas a real favor now, in return for the bail out of the banking systems, by willlingly buying debt at very low yield. The private market has no interest in doing the Treas any favors and interest rates will rise and dramatically when the Fed stops buying.
So, the bottom line is that Fama is actually correct that the play out of this may have little of no negative effect on the Fed but the impact on the Treas and bond rates will be colossal. There is simply no way that the US Govt can reduce spending or raise taxes near enough to reduce the gigantic amount of rolloever debt that will be on its hands when the Fed decides they are no longer a customer. This argues for the Fed perhaps never actually buying down but just continuing to float or rollover all or most of what they have bought. The result would be an economic reset at a higher level of Treas Debt and a much larger Fed balance sheet essentially forever.
The Fed and the Treas/US Govt. are siamese twins sharing the same heart. They are distinct and separtate entitities but one does not survive if the other dies. Functionally they exist to protect each other and the interests of the political and economic elites. What they have in common is that they derive their power (on the political side) and profit (on the banking side) from the same source, all of us, the folks in the bleacher seats.
lol, left hand, right hand logic. That Mike Maloney presentation was a good illustration.
There will be no problem in finding new buyers of t notes. You only need a new big war and a once in a life time stock market crash.
An interest rate shock would be a game changer...
What, he's not saying that the efficient market is currently pricing in all that free money and when it gets taken away it will price that in too?
Wow! Well, I know the Nobel committee has misfired a number of times, but this guy is clueless in his own field!!! But when I heard the university of Chicago, it all became so clear. But what really bothers me is how is it that buying $85B a month has had little effect on interest rates? If that was the case they wouldn't be doing it in the first place. I don't think there is a single person on the Fed board that believes that, but this MORON actually made this ridiculous statement.
I plan on being totally out of the market when the Fed unwind starts. Of course the "unwind is no big deal" as said repeatedly by a Nobel winner, but I think I'll sit on the sidelines and miss the big rally. That's just how I do things.
Fama is no idiot. Fama points out that correctly that most of the QE money is at the Fed albeit at the short end. It is certainly easier to buy long bonds than to sell them. Perhaps this is the fallacy in Fama's thinking. If you ignore the massive rape job on savers, it looks so far to be a beautiful deleveraging as Dalio states. I presume the the Fed will hold their portfolio to maturity. What perhaps many are missing is that the savers are paying every day for QE. Perhaps what many are also missing is that a bout of inflation will help cure the trade and fiscal imbalances. These academics look at the numbers as opposed to caring about who gets hurt.
That is the most incredible thing I have seen in a long time. WOW!
I sure hope that we are at or very near peak stupidity, because I'm not sure how much more I could take.
I vote you up for your term "peak stupidity". Love it.
If global economic collapse is "no big deal". Then I agree with him.
OUT TO LUNCH is the only way to descibe that moron.I can't belive government makes decisions on what idiots like that have to say.What the hell is that guy on anyways,the guy's a basket case.
Fama is amazingly clueless. He doesn't even know how the monetary system in the US actually works. He won what?? Bank reserves are not 'short term debt', they are the cash assets of banks, and can only be used for interbank lending and for paying depositors who want to convert deposit money into standard money (currency). However, since the Fed buys most securities from what are technically non-banks, it creates deposit money concurrently with bank reserves - with the effect that the money supply has increased by about $4.2 trillion since 2008 alone (or 82%).