Why The Fed's Dual Mandate Is Doomed (In 2 Simple Charts)

Tyler Durden's picture

While the Fed's official 'mandate' is do no evil maximize employment with stable prices, it is perhaps better understood (in recent decades) as pump credit, create bubbles, hope for job creation, and hope that inflation does not get out of control. So the following two charts from Citi suggest the Fed, no matter how much Taper or un-Taper they do, face some serious demographic headwinds from rising inflation and plunging stock valuations.

 

Inflation will rise...

 

And valuations will tumble...

 

Unless it's different this time... Did Bernanke escape at the Fed's peak demographics moment and leave Yellen to clean up his mess?

 

Charts: Citi

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Manthong's picture

"Did Bernanke escape"

.. so far

jonytk's picture

Unlike in 1929 we have now infinite magic money!

yahoo! https://www.youtube.com/watch?v=bCEJ65H_1XE

whatcouldpossiblygowrong.jpg

www.getbitcoins.tk

0b1knob's picture

Speaking of demographics, I don't think anybody has ever commented on the demographic nightmare that is Mother Russia under Putin.

- Abortions excede live births.

- "Hypermortality" of Russian males.  Combination of alcoholism and suicide.

- Migration out of Russia of almost everybody with the means (money) to get out.   

- Very poor deomographic mix.   The birth rate has been low since before communism fell.  The number of women of reproductive age (as well as the number of men of draft age) is about to go off a cliff.

- The Russian speaking portion of the population will become the minority in a few decades.

- Even worse, Muslims will become the majority in about 30 to 40 years.   

- The rate of population growth is less than .4 % for the country.   For the Russian speaking portion it is already negative and will only get worse.

No wonder Putin wants to annex all the Russian speaking people he can get his hands on.   Its a matter of destiny.  You haven't seen anything yet.  The Russian are destroying themselves.  Just sit back and enjoy the show.

AGuy's picture

Yawn. Yellen will just move the goal posts when its necessary. If Inflation rises near the 2%, they will like just change the way its calculated or just change the target rate above 2%. The Dual manidate is meaning less since its written what the limits can be. The Fed can just pick its targets out of thin air!

I find it hard to believe the the Fed will ever raise interests rate. Maybe the will increase it by 100 bps, but since the gov't already pays 26% of revenue in interest, its seem very unlikely that the gov't can continue if interests rise. If Borrowing costs for the gov't normalized interest payments would probably rise somewhere between 40% and 60% of revenue.

 

Colonel Klink's picture

The dual mandate has always been a farce.  They do what's best for their members, not the US people.

On an OT note:  Eric "shitbag" Holder up to his no good hypocritical tricks.

http://freebeacon.com/issues/holder-we-want-to-explore-gun-tracking-brac...

PlusTic's picture

It's even worse, they create inflation and call it "growth"...only fukkin thing these clownsians can do...they've debased the currency over 98% since their illustrious commencement in 1913...only solution: MOB JUSTICE!

chinoslims's picture

clownsians?  is that Armenian for clowns?

PlusTic's picture

nope just the descendants of john maynard clownes

0b1knob's picture

Dual mandate?

What was it called when Obama went out with Rahm Emmanuel and Reggie Love to Men's Country?

I'll take Jap Anus relationships for 1000 Alex.

GreatUncle's picture

That my friend is the fucking joke.

We need itemised volumes of what is being sold.

Sell 100 tea cup in one year for 10p each

Nextg year sell 99 tea cups for 20p each fantastic growth that.

That is the effect of the Keynesian mechanism.

You might want to measure the weight too as it is thame thing same for less or more for the same.

1913, in this all nations and elies had to be involved hence the USA had too go along and the biggest con going. No one nation can stay out otherwise you could measure what the others were doing ... now they all are.

chinoslims's picture

The Fed has two mandates:

1) to see how many people it can enslave

2) how much expensive shit the rich can buy.  It would be so uncivilized if you can't own a 6-bedroom without a few Mercedes, BMW's or (insert luxury car name here).  It would be so unsightly if you have to wear the same Rolex watch two days in a row.

We've reached peak Greenspan and peak Bernanke.  It would be scary if we are experiencing peak Yellen because the only way to go is down.  There is awful lot of room down to go since we are at so lofty heights with all these asset bubbles.  

Vampyroteuthis infernalis's picture

We as a society are demographically declining rapidly! There is no escaping this unless we make a child friendly society. 

i_call_you_my_base's picture

It depends on the goal. In my eyes a falling population is positive.

Vampyroteuthis infernalis's picture

If you consider dying homeless and impoverished as positive when old, you are a twisted person. If the younger generation does not support the elder, it has dire consequences for both and especially the elder.

i_call_you_my_base's picture

What's the difference if there are no jobs?

i_call_you_my_base's picture

OK, someone can explain to me how an increasing population without jobs will pay for aging boomers.

eclectic syncretist's picture

Once we get rid of Obama and get Jeb Bush or Paul Ryan or Marco Rubio or Chris Christie in as president everything will change, won't it?  Every four years Republidemocrats keep telling us that if they get elected we'll have some big changes, and every four years, the only change is that it gets worse for everyone but them and their bribers.

i_call_you_my_base's picture

If we get a Bush vs. Clinton election my head will fucking explode.

Pure Evil's picture

Make sure you get it on video so the rest of us can watch it on youtube.

Vampyroteuthis infernalis's picture

OK, someone can explain to me how an increasing population without jobs will pay for aging boomers.

It doesn't. Even worst is a shrinking population without jobs. No paychecks. No demand. No reason to hire. Everything implodes, quickly.

whoisjohngalt11's picture

This....http://heavenbounf.blogspot.com/2014/04/here-come-bastards-we-literally-...

 

this man from Hawii has great take on why we in the west are failing .. also this from Milton Freidman,he had a great take on lack of saving.. Patriarchy is dead..

http://heavenbounf.blogspot.com/2014/04/modern-consumerism-is-suicidail-...

Dr. Engali's picture

WTF is the deal with all the blog spamming sock puppets?

101 years and counting's picture

the fed's unofficial (but real) mandate is to pass money up the ladder.  and they have had great success in accomplishing that mandate.

BandGap's picture

People thinking in a linear fashion. Again. Nature is all about the curve of the cycle.

This makes so much sense now.

 

knukles's picture

We used to call that skank in college "Hairy Dent"

Colonel Klink's picture

Here I thought you were talking about Obama, except it should have been hairy dent.

Dr. Engali's picture

I believe 'hairy cunt' are the words you are searching for.

Colonel Klink's picture

I see that as Eric "hairy cunt" Holder.

Colonel Klink's picture

Cut the arm of the Federal Reserve off and hopefully the .001% will finally die from thirst.  Oh wait, they still have the blood of babies to drink.

Pure Evil's picture

And virgins. Nothing like a 16 year old princess at her peak.

q99x2's picture

So far I can't complain much. Everything I have is covered by the FEDs. I only wish they would pay me more to go to college. I'll be a tremendous asset to some country one day.

FieldingMellish's picture

<--- today's ramp comes at 3:30PM

<--- today's ramp comes before 3:30PM

Caracalla's picture

Exactly!  Better sell the shorts and go long before 3:30.  Ms. Yellen be Jellin' and if you stay short today, you'll be Tellin' a sad tale and Yellin' about your misfortune.

disabledvet's picture

"it's all about finding the off ramp now" you schmegeggi.

now wolf down your blintz and ponder that one while riding the number seven.

it's a war of all against all and the best you can say is "I got unwanted attention drawn to my predicament."

and to think some people spend their whole lives looking for this.
worse still "capitalism" and "the media" are even legal.
now stop the presses! "there's a ping in the Ocean!"

FieldingMellish's picture

Careful... early ramp looking like a failure.... calling all members of the PPT....

Al Huxley's picture

I thought their mandate was to facilitate the transfer of ownership of everything from the citizens of the country to their friends and owners, then shut down and restructure society in the model of a medieval feudalistic nobility/serf class structure.

disabledvet's picture

they couldn't even do that one right.
"nobody owns anything" right now.

they're all just hunkering down waiting for the "normal people" to hurry and get the war going.

XRAYD's picture

Mandate should be changed to truth, facts, record ... SEE no evil!

kchrisc's picture

Of course the insidiousness of their "mandate” is that by "printing and pumping" they are stealing the vary capital that is needed to employee people in the first place.

Never forget, "printing" is theft.

 

"My guillotine dabbles as a barber on the side. Hot straight-razor shaves are free for banksters, pols, and crats."

tradewithdave's picture

Headline is correct... double mandate doomed... displaced by triple mandate. 

 

http://tradewithdave.com/?s=%22triple+mandate%22

polo007's picture

http://www.theaureport.com/pub/na/ted-dixon-what-gold-stock-insider-trading-tells-us

The Gold Report: The price of gold fell more than 6% in March. To what do you attribute this?

Ted Dixon: Gold took a one-two punch in late March. The first was the widening of the renminbi trading ban in China by 2%, which added extra costs to buying and hedging gold. The second was the surprisingly hawkish tilt of the U.S. Federal Reserve, pointing to interest rates rising a little bit sooner. Tighter monetary conditions do not usually benefit gold.

TGR: Increased import duties in India haven't reduced gold buying there. Why would China be different?

TD: I think the flows are different. In China, there is a lot of financial activity related to gold, whereas in India gold buying is cultural and driven by consumer consumption.

TGR: We've heard about greatly increased governmental buying in China, have we not?

TD: There have been rumors of that, and the Chinese media has called for the government to boost its gold reserves. That could provide a longer-term counterbalance to the shorter-term renminbi pressure.

TGR: DataQuick's latest U.S. national homes sales snapshot shows that "prices are flatlining or drifting lower while sales are sinking like a stone." Meanwhile, "The big private equity firms [are] exiting the [housing] market." These data don't suggest a U.S. economic recovery, do they?

TD: Basically, insiders are telling us that stock prices now have priced in a lot of good news, so it would be interesting to see how they react to whips to the downside. One has to be cognizant that much of the U.S. equities rally has been driven by the Fed and, arguably, has little to do with GDP growth one way or the other.

TGR: With regard to this hawkish tilt, it has been assumed for several years that we'd see higher interest rates and an end to quantitative easing (QE) only after an economic recovery. Given how weak the U.S. economy remains, can we assume that the Fed believes it is close to exhausting the utility of zero interest rates and quantitative easing?

TD: The Fed has a big ticking time bomb on its balance sheet. It is still piling up reserves, and I'd love to be a fly on the wall in staff meetings that don't get reported. I have to assume there is much concern about what happens to those reserves, particularly if the economy does surprise on the upside. In this sense, the low-altitude economy has been a blessing for the Fed.

We may have a little game of bluff going on here. The Fed is taking a hawkish stance now, saying it has to move rates up earlier, but, of course, if the economy remains weak, and the Fed has to backtrack, that opens up risks on the other side. The Fed has been running a big monetary policy laboratory over the past few years, and sometimes in laboratories accidents happen. At this point, however, the stock market seems to have assigned a very little risk premium to something bad happening.

TGR: It has been argued that if you remove the Fed's monthly stimulus from the monthly GDP report, GDP is actually shrinking, not growing.

TD: The Fed has certainly manipulated the economy. It has picked its favorite sectors, housing and autos. I believe that Operation Twist and QE have hurt the commodities base because they have favored interest-sensitive industries. Now, however, these industries will have to stand on their own two feet, and we'll see how this experiment in industrial policy works out. Usually, planned economies have a day of reckoning when stimulative measures run out of steam.

Ted Dixon is co-founder of INK Research (Insider News and Knowledge), Canada's first online financial news and research service dedicated to providing data on public company insider trading. (Free services are found on CanadianInsider.com and InsiderTracking.com.) He worked previously for Connor, Clark & Lunn Financial Group in portfolio strategy and product development, the Fraser Institute as an analyst, TD Bank as a treasury specialist and the Vancouver Stock Exchange as a floor trader. He has lectured in corporate finance at the BC Institute of Technology and is a Chartered Financial Analyst and member of CFA Vancouver. He holds a Master of Business Administration in financial management from the University of Chicago.

Pumpkin's picture

LoL!  Mandate! LoL!  The feds mandate is to steal as much as possible.  And they are damn good at it!

polo007's picture

http://truthfrequencyradio.com/how-far-will-stocks-fall-this-time-when-the-fed-decides-to-slow-down-quantitative-easing/

From the time that QE1 was announced to the time that it ended, the S&P 500 rose from about 900 to about 1,200.

When QE1 ended, the S&P 500 fell back below 1,100.

In a panic, the Federal Reserve first hinted at QE2 and then finally formally announced it. That round of QE drove the S&P 500 up to a bit above the 1,300 mark.

Once QE2 ended, there was another market correction. The S&P 500 fell all the way down to 1,123 at one point.

In another panic, the Federal Reserve first announced“Operation Twist” and then later added QE3. Since that time, the S&P 500 has been on an unprecedented tear. At this point, the S&P is sitting at about 1,800.

starman's picture

maybe they'll start printing 3D jobs?

venturen's picture

I thought their mandate was to maximize Wall Street Bonuses?? 

toomuchtom's picture

All these charts suggest is that the Fed will ultimately buy the SPX.