Bernanke Shocker: "No Rate Normalization During My Lifetime"

Tyler Durden's picture

Forget all talk about "dots", "6 months", or any other prognostication from the Fed's new leadership about what will happen in the near and not so near future. For the real answer prepare to shelve out the usual fee of $250,000 for an hour with the Chairsatan, or read Reuters' account of what others who have done so, have learned. The answer is a stunner.

"At least one guest left a New York restaurant with the impression Bernanke, 60, does not expect the federal funds rate, the Fed's main benchmark interest rate, to rise back to its long-term average of around 4 percent in Bernanke's lifetime. "Shocking when he said this," the guest scribbled in his notes. "Is that really true?" he scribbled at another point, according to the notes reviewed by Reuters."

To think one could have read Zero Hedge for free for the past 5 years and gotten the same answer (time for a pop quiz: pumping liquidity into a closed system in perpetuity is i) inflationary or ii) deflationary?). But no, one would rather pay Bernanke's former annual salary in less than an hour to get the answer from the same person who infamously stated that "subprime was contained", that "there is no housing bubble", and that he doesn't buy the premise of house price declines as there has never been a "decline of house prices on a nationwide basis."

Still, one can't blame Bernanke for providing a service that the market (one market the former chairman didn't manage to break with his central planning spree, unlike all other markets) demands. Alan Greenspan waited only a week after his departure before addressing a private dinner hosted by Lehman Brothers, the investment bank whose collapse in 2008 sent the financial crisis into high gear.

Bernanke's private dinners, all of which cost around $250,000 began near the end of March, roughly two months after his retirement.

We say around because while Greenspan has already been rocked by 50% deflation in his "assets", Bernanke too is starting to realize that without constant liquidity injections, his "inflationary" days are also numbered:

The baseline fee for a private get together is $250,000, and more if Bernanke needs to travel from his home in Washington, though the price has dropped some as he has done more events, the sources said. The size of that decline could not be immediately learned.

Certainly expect the price of a Bernanke dinner to tumble now that virtually everyone who matters, and can afford the fee, has already listened to the Chairsatan in private, and the value of Bernanke's insight has been, shall we say, "diluted":

Hedge fund attendees have included Paul Tudor Jones of Tudor Investment Corp and David Einhorn of Greenlight Capital. Others have included Michael Novogratz of Fortress Investment Group, and Larry Robbins of Glenview Capital, as previously reported in other media. All declined to comment to Reuters.


David Tepper, the hedge fund manager who earned $3.5 billion in 2013 to rank as the industry's best paid investor, said at an industry conference this week that he attended the first private dinner and peppered Bernanke with questions. But Tepper said he didn't make the best use of the information, a lapse he now regrets. "I screwed up that trade," he said.


At the same conference, Novogratz from Fortress said many hedge funds that bet on big interest rate and currency movements missed a hint from Bernanke at the dinner and failed to buy long duration Treasuries.

Oh yeah, it was Bernanke hinting that Tsys are due for a surge - nothing to do with the fact that the global economy is stalling and that everyone and the kitchen sink was short rates, launching one of the biggest short squeezes in recent history.

Not surprisingly, not everyone is a happy customer:

Not every guest believes they came away from a Bernanke dinner with an exclusive insight.


"People can try all they want to feel that they got him to say something extra to them, but he never does," said one person who attended one of the dinners.

As for Bernanke's profound insight, it appears all he really did is admit that he failed at stimulating the economy.

In one dinner-table exchange with investors, Bernanke argued that fiscal tightening, constrained financial markets and lower U.S. productivity all point to lower real rates than would be considered normal for a long time to come.


Based on trading in the massive Eurodollar futures market, investors have in recent months tempered expectations of rate rises in the years ahead; as it stands, they don't expect the fed funds rate to return to 4 percent until 2022. As recently as last September, futures markets signaled they thought this would happen by the end of 2018.


At the dinners, Bernanke has also argued the Fed would want to delay raising rates if the tighter financial conditions created could threaten to harm the economy. He has also stressed that financial stability concerns would more formally be considered in policy-making, according to the sources.

In other words, blame Congress for slowing down the economy as it did not engage in reform, the same Congress which explicitly made it clear it would not engage in reform and told the Mr. Chairman "to get to work" to compensate for Congressional ineptitude. And now Bernanke has the gall to blame Congress, which is only able to do what it does thanks to, you guessed it, the Fed's ZIRP policy.

Of course, the slowing down of the economy, snow or no snow, is precisely the reason why bonds are bid. We explained as much recently:

"When the Fed begins lifting rates is almost not an issue any more,” Stan Jonas, former managing partner of Axiom Management Partners in New York, "The real question is how fast does the Fed increase rates and where do they stop. The market now sees diminished macroeconomic expectations and expects the Fed to ending the upcoming tightening cycle at around 3 percent."



In other words, the bond market believes in the Japanization of America and another lost decade as the new normal low/no growth world slugs along with no escape velocity dreams anytime soon.


Or even more clearly - it's about more than this cycle... the Fed's taper will run its course, the Fed will tighten rates and the economy will slump rapidly meaning the Fed will ease once again (and by then QE will have lost all credibility as anything but an asset inflation machine and along with it - the Fed's credibility)... the tumble in forward rates indicates the markets growing belief that the future growthiness looks very different from the dream priced into stocks...

Or, in other words, the Taper will lead to the Untaper, as we predicted exactly one year ago, leading to QE number... we don't even know the nuimber any more - 5,  6,  7? Rinse. Repeat.

As for the conclusion:

"He's being paid ... for sharing his wisdom and predictions, and presumably not to exert his influence on the Fed," he added. This will go on "until he's proven to not be all that clairvoyant."

The biggest shocker is not that Bernanke punked the market once again and after 5 years of QE the US economy is once again headed into a tailspin - most people with some common sense knew that in 2009.

The shocker is that people are willing to pay even $1, let alone $250,000, to listen to Bernanke speak.

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Flakmeister's picture

Is this really a surprise?

Pinto Currency's picture


They are losing control of the bond market (eg. having to resort to Belgium for Treasury purchases) and the situation will get worse.


BrosephStiglitz's picture

We'll do a barter deal- treasury bonds to infinity for the European parliament.  

BKbroiler's picture

forget "normalized", negative interest rates are coming

BrosephStiglitz's picture

That's the Rubicon Line.. once that happens the only limiting factor will be one of bargaining power of the banks.. minus infinity here we come.  

(Normalized rates is such a nonsense term anyway.. if rates were trading at market values they would probably be well north of 10%in the US and most of Europe.)

Edit: though seriously I do not know how they would ever manage negative nominal rates in practical terms.  That would be a giant incentive for the black-market economy and organized crime.  Much easier to inflate the hell out of the money supply and keep real rates negative.  In that case the limiting factor will be one of political opposition.  They'll try to keep the theatre going as long as possible and after that the tanks roll in.

THX 1178's picture

I think all the central bankers and private bankers and a great many intell-agency thugs know exactly whats coming. They know there will be an uprising and trials/executions, and they want to communicate in no uncertain terms to us that they sincerely dont understand and therefore cannot be held responsible for any of this. They will blame this on black-swan-ness (even though we all know this is not a black swan). They will call it an act of god that no one could have seen coming. This is bernanke saving his ass.

BrosephStiglitz's picture

It's very likely.  The message to the top-end bankers, CEOs, Wall-street insiders:  Cash in your chips at the teller before the clock hand strikes midnight, make sure you trade that paper money for real assets.  Then hunker down in your bunkers because shit is going to get real ugly real fast.

Pool Shark's picture




"In other news, former Federal Reserve Chairman Benjamin Bernanke was killed today in a tragic incident involving a nailgun. Reports indicate there were fatal wounds sustained from at least seven nails fired from the pneumatic device. A law enforcement spokesman is quoted as saying they believe it to be an act of suicide..."


jaap's picture

off topic, but hear condoliza r. explaining the ukraine war to us europeans:

CrazyCooter's picture

Bernanke's opinion makes total sense. Why? Interest rate swaps.

If I am not mistaken, interest rate swaps and credit default swaps are the two biggest slices in the derivative market pie that gets touted so much. You know, the JPM has 100T (big T!) in gross (not net) derivatives.

What is an interest rate swap? Simple in concept. Let's say you get a credit card offer in the mail for 9% and you want to use the whole line for your small business. But you are worried the rate will go up in the future, right? So what you do is buy an interest rate swap and transfer the rate risk (i.e. the chance the rate will go up or down) to someone else. So, you get 9% forever and someone else gets the plus or minus. Rates go to 15%? That poor bastard on the other end of the swap eats it. Rates go to 0% the bastard is laughing all the way to the bank (because he doesn't have to walk anywhere - its JPM).

When rates started dropping years ago, everyone wanted to lock in the low rate and avoid rate risk to the upside. So they did. JPM has such a huge book because they made the market and took the other side of the trade. Rates kept on dropping and JPM kept making the market.

The simple fact is that if rates do go up, some banks are going down which will set fire to the CDS market. And its too big to bail this time. Welcome to ZIRP forever. Which will, by the way, slowly destroy the entire market/system. Keep your power dry for the reset!



old naughty's picture

how long is his lifetime, I wonder.

CrazyCooter's picture

That was my first thought. My guess is ten years, maybe 15. So, think "lost decade or two".

But, ZIRP is eating the economy like a cancer, so shit will come unhinged way before that.



Chief Wonder Bread's picture

Apologies if someone has already made this observation.

From the article:

Certainly expect the price of a Bernanke dinner to tumble now that virtually everyone who matters, and can afford the fee, has already listened to the Chairsatan in private, and the value of Bernanke's insight has been, shall we say, "diluted":

No. His fees will remain the same and he will 'earn' them. Why? Because this is merely the payoff period for his 'work' during his tenure as Chairsatan. If he didn't continue to earn fees at these levels, then Yellen and those who come after her wouldn't know who to serve. There's no honor among thieves.

Boris Alatovkrap's picture

Boris, in humble apartment share with mother-in-law and lazy nephews is say again and again, Fed Rate is forever to be stuck. Duration Mismatch is, how you say, reed for breaking of posterior of dromedary. In 2008 Fed is lower rate and is hold for too long, and new ZIRP regime is building on lend long borrow short in perpetuity. All other world central bank is follow.

Stackers's picture

What idiot would be shocked by this ? Anyone with half a brain, a calculator and access to knows that interest rates can never rise, ever, never, never ever again or the whole world turns into Cyprus and Greece. Should be interesting when interest rates do rise.......

Pinto Currency's picture


Expect proclamations by Bernanke and other central planners to become more and more fantastic as they become more desperate.

My sense is that we are about to be swamped by consumer goods price inflation after Bernanke et al's wild QE monetary inflation.

Solution: conflict with Russia and blame energy and metals price spike on Euro energy disruption and fear trade.

re. the video of Bernanke - the US did have dropping house prices on the national level - during the Great Depression.  Bernanke would have known that.

rubiconsolutions's picture

It's an interesting "coincidence" that this article is just a couple away from another about homelessness. In the coming years the elderly who depend on savings are going to be homeless as their savings is eroded by ZIRP and QE enabled inflation. But of course it will be illegal to help the elderly homeless because, well, the government can do a far better job.


derek_vineyard's picture

investing options:

2% yielding s and p stocks ---- dividends taxed as cap gains

5 year brokered cd's yielding 2% taxed as ordinary income  (10 year cds yield 3.35%)

rental real estate (which requires active participation)

gold bullion. silver bullion and guns in excess (some to trade)--which government is hell bent on crashing the market

cash and just eat all the worlds inflation

PE's at 1,000,000 will yield more than a money market.  LOL at our world.  Humans are stoopid.

eatthebanksters's picture

Why would anyone pay this douchebag $250k to blow smoke up their ass when a nasty hooker would do it for $25.  Unbelievable...what insights will this guy give that are different now from when he was Chairsatan?  He's still going to lie to keep the game going as long as he can.


LetThemEatRand's picture

Hookers with beards and fore-knowledge of what the Fed is going to do are more expensive.  Niche market.

StychoKiller's picture

Reminds me of that scene in "Jurassic Park II" where the T.Rex saunters off the cargo ship:

Malcom:  "Now you're John Hammond." (to the jerk CEO that 'thought' he had things under control)

Kirk2NCC1701's picture

When will people clue in that ZIRP = libertarianism of sorts?  Think about it...

If you're against Usury and dont' believe/think that "money should beget money" (compound interest), but that we save by saving what we earn ("By the sweat of thy brow thou shall..." Genesis 1), then it only makes sense that FRB gets reeled in with ZIRP.

Funny how people hate the Truth when it adversely affects them (i.e. No interest on savings).  Boo-hoo kitty!

DeadFred's picture

I am hoping he is correct and that rates mormalize by the end of the year ;)

JoeSoMD's picture

It is posts like yours Sir that keep me coming back to ZH.

JoeSoMD's picture

Sorry, a couple of questions from a novice... why will ZIRP forever slowly destroy the entire market / system?  What "system" are you referring to.  Not trying to be sarcastic here ... just trying to learn.

eatthebanksters's picture

Read up on 'liquidity trap'.  All you need to know.

Chief Wonder Bread's picture

It distorts the price of money - the money market rate of interest. All sorts of nonproductive investments get funded because it becomes difficult to identify truly productive from nonproductive assets when the price of money is distorted/suppressed. These nonproductive investments will never pay for themselves. In that way, capital (productive assets) is destroyed or never replenished. Society cumulatively gets poorer and poorer although few can identify the cause.

daveO's picture

And it funnels more money to the gov., allowing it to takeover the markets.  

CrazyCooter's picture

JoeSoMD, I have a few words of advice.

First, I didn't know shit until '07 when I knew housing was jacked and I (1) let an investment professional make bad decisions on behalf of my household and (2) I let my ex-wife talk me into buying a house. This was the second time I got screwed in investing and I realized that if I didn't learn how the system worked, I was under the bus in old age.

Here is the reality; if *YOU* do not learn how money, banking, and the financial system in general works you are *FUCKED* in old age.

Check? Roger!

Second, I have been on ZH for quite a while and so far this is the best place to cut your teeth. Read the shit you don't understand, it is why you are here. The faces and the voices have changed and it is unfortunate that much of the back-and-forth of the old threads is so out of reach, it is there if you want to dig.

<Aside>Tylers, I have ideas about how to re-purpose old content if y'all care. The real thread contributors tend to fade over time, so a tool set that lets folks pick a name and read would be highly useful. Ping me and I can pitch for you. I assumed you didn't have it because you consciously decided not to do it. I thought about this as a third party site, just going off archives, but I got better shit to do (like fish!).</Aside>

Thired, everything you ever needed to know can be learned in two books and one PDF (learn how to search Google):

None if this is new. It is the SAME shit for hundreds of years. Computers are the only new dynamic. If you don't have time to read that stuff on the shitter, then you aren't serious about learning a damn thing. It pretty much sums up, in narrative no less, much of what you need to know.

Lastly, to highlight, that Shadow Banking PDF summarizes the interest rate swap stuff I talked about up thread. And a lot of REALLY good info if you are cutting teeth.




CrazyCooter's picture


My apologies.

I meant to cite this paper. Hope you check back for the update.

Dallas Fed: Understanding the Risks Inherent in Shadow Banking: A Primer and Practical Lessons Learned

Best of luck.



CoonT's picture

+10 most informative comment ever

BrosephStiglitz's picture

What a cocksucker.  Translation:  Hey Europe.  You NEED to damage relations with a regional neighbor because it suits our interests.  Maybe send your economy back to the Stone Age.  Another world war perhaps?

Europe is in a tough spot right now.  No question.

Winston Churchill's picture

No tougher than 1939.
Oh wait.....

BrosephStiglitz's picture

You're right.  It's more like 1913.  Only this time with a small industrial base, nuclear capabilities, and massive energy dependence.

CrazyCooter's picture

The US benefited in many ways from both World Wars ... because they largely were not fought here. We didn't have much to rebuild. With all the industrial capacity, when Europe was a burned out honkey tonk, it was kind of hard not to have a few good years in sales.

The trick is to net it out and realize the world could have been better off with the resources deployed building on what existed instead of rebuilding what already existed.

At interest.



BrosephStiglitz's picture

Loving these posts Cooter.  Rice and other bureaucrats are just kicking the hornet's nest are are hoping to turn Europe into ground zero for a global war. At that point they can turn around and tell the Europeans: "See- we told you that Putin couldn't be trusted!"  So who does Europe pick?  Their historic NATO ally who at this point seems to want to maintain its slipping grip on global power at any cost?  Or do they go willingly into the arms of a despot who almost certainly won't have their best interests at heart.

What you mention is called the "Broken Window Fallacy" in academic terms by the way..  The process of rebuilding after destruction, ie:, wars are good for the economy.  If I bomb a hospital, yes I am forced to clear up the wreckage build another hospital after peace is restored.  But with those resources I could have built a second hospital and had resources left over after.

The only good thing that war does do is cause a large investment in risky R&D projects that otherwise would never have of been considered.


CrazyCooter's picture

While most of the population of the world is either ignorant (i.e. not educated and won't understand) or not paying attention (i.e. educated/educable and doesn't care) they will start asking really hard questions when shit hits the fan. Absent a war, that will be a domestic "come to Jesus" meeting between the population and its leaders.

War is how the current crop of broke dick leaders avoids culpability for the disaster they are presiding over.

Oddly, Putin has thwarted them at every turn and comes out on top to boot (i.e. Iran, Syria, and so far Ukraine). While Putin is sharp, these outcomes point to the genuine incompetence of US leadership. If he is able to achieve a peaceful outcome with all this pot stirring going on, it might prove to be the best opportunity the Soviets/Russians ever had to topple the US.


What is Putin's strategy? Simple to avoid a hot war and watch the US economy implode. When the dollar loses reserve status, the US loses its military machine (i.e. we won't be able to afford it anymore).

I think that is Russia's game, but time will tell. And, as always, I could be (and often am) totally wrong.



BrosephStiglitz's picture

Agreed.  I was also aware of fed rates remaining low due to overleveraged banks, but I hadn't studied interest rate swaps.

PS: Coming back to my point of R&D and warfare.. it is likely that renewable energy (or non-conventional energy) technologies would absolutely explode out of another world war, provided that nukes aren't employed.   I don't think there has ever been such an enormous necessity for a particular technology.  Japan, Europe and China are all desperate for this right now and the demand for increased levels of industrial production, and the operation of mechanized armies would really tip the balance away from the oil/gas cartels.

StychoKiller's picture

Time is on Putin's side in these events.

free_lunch's picture

Off topic, but certainly related in more than one way: now the previous link seems to have become invalid after +10.000 views I will post this new link to the account of the producer of this crowd funded documentary EUROMANIA.


Does Europe provide jobs and democracy, or is it a big business project? A deeply personal and revealing documentary from the creators of the 2012 hit Panopticon. EUROMANIA shows what is happening to people and countries all over Europe.

thestarl's picture

A real global issue youth unemployment and prospects getting dimmer.

groundedkiwi's picture

I wonder if Ukraine is aware the lovely Condaleeza thinks Russian gas should not go through Ukraine. Its a money earner.

realWhiteNight123129's picture

Bernanke IS RIGHT. The Fed is going to fail before. So no Fed no Fed Funds rate at 4%. Simple.

Lost My Shorts's picture

Either that, or some nervous morning it's going straight from 0% to 25% with no stop at 4%.

new game's picture

notice of death went on to say the family askd for forgiveness for the millions of families his policies put in turmoil.

"We dispair the consternation he was under to answer to his superiors. forgive them too"...