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Is The Fed Going To Attempt A Controlled Collapse?

Tyler Durden's picture




 

Originally posted at NotQuant.com,

As most Fed watchers know, last week was interesting because Janet Yellen, speaking at IMF came out and said something quite surprising.  In a nutshell, she said “It’s not the Fed’s job to pop bubbles”.   While many market participants immediately took this to mean, “To the moon, Alice!” and started buying equities hand over fist, there’s another possible explanation for Mrs. Yellen’s proclamation of unwillingness:  The Fed could be preparing to do exactly what it said it wouldn’t.

Here’s a quick re-cap of events:  In the recently released Annual Report of the BIS: Bank for International Settlements  (commonly thought of as the “central bank’s central bank”) the BIS made a rather ominous recommendation to it’s member banks: Pop this bubble now.   Their specific language wasn’t quite so direct, but the message was just as clear.

The risk of normalising too late and too gradually should not be underestimated… The trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on .

 

Few are ready to curb financial booms that make everyone feel illusively richer. Or to hold back on quick fixes for output slowdowns, even if such measures threaten to add fuel to unsustainable financial booms,” …

 

“The road ahead may be a long one. All the more reason, then, to start the journey sooner rather than later.

As we noted last week, there are a couple of fascinating things to note about this recommendation.   First, for anyone who thinks that the concept of intentionally crashing the stock market is the stuff of conspiracy theorists, that notion is now dead and buried. It’s extremely clear from the BIS’ language, that the concept of initiating a collapse is openly discussed as a policy measure.   This was a direct recommendation to bring on the crash – or as they say so colorfully, to “bring forward the downward leg of the cycle”.

More kabuki?

More kabuki?

But what else is fascinating is that just days after the BIS report was released, Janet Yellen seemed to counter the BIS in her presentation to the IMF:

“At this point, it should be clear that I think efforts to build resilience in the financial system are critical to minimizing the chance of financial instability and the potential damage from it. This focus on resilience differs from much of the public discussion, which often concerns whether some particular asset class is experiencing a ‘bubble’ and whether policymakers should attempt to pop the bubble. Because a resilient financial system can withstand unexpected developments, identification of bubbles is less critical.”

What Yellen seemed to be saying — quite possibly in direct response to the BIS’s recommendations —  is that the Fed isn’t in the business of popping bubbles, nor does it see a reason to intervene in their development.

So to summarize:  The BIS publicly recommended popping the bubble now… and Yellen said no.

So what’s going on?

We could take all of this at face value if we chose:  The BIS playing hawk, and the Fed playing dove.  And that might well be the case — as to some extent Yellen is still something of an unknown entity.

But there is one more twist to the puzzle:  Yellen has openly stated that she would not be offering clear guidance to the market as her predecessor had advocated.  The age of Fed-glastnost is apparently coming to an end.

So indulge us for a moment as we present another possibility:

Yellen is going to orchestrate a controlled collapse.  Or, at least one which we hope is controlled.

There are political considerations to be made, however:  The Fed, which has not only come under intense fire for overt market manipulation, but which is also deeply concerned with market perception, simply cannot afford to be perceived as an instrument of the market’s collapse.   To be seen as the instigator of a crash could do irreparable harm to the institution.

Pop bubbles?  Who us?

Pop bubbles? Who us?

So just maybe the Fed fully intends on heeding the advice of the BIS, and is strategically positioning itself as a stalwart dove to shield itself from the public fallout of it’s orchestrated financial calamity.   A particularly sound play from a political perspective in the event that things don’t go as smoothly as planned.

One thing is certain at this point:  An intentionally orchestrated crash is the direct recommendation of the BIS, per it’s annual report.   That this action exists as a potential policy measure is now confirmed.

The remaining question is: Would the Federal Reserve pursue such a policy measure openly, or behind the same curtains from which most of their historic policies were enacted.

As we re-think Mrs. Yellen’s speech to the IMF, we are less certain that the Fed is as unwilling to intervene as Mrs Yellen would have us believe.   Bringing forward the next leg of the cycle, may well be on the Fed’s agenda.

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Tue, 07/08/2014 - 17:02 | 4936886 SMG
SMG's picture

"Yellen is going to orchestrate a controlled collapse."

HA! Good luck!

Tue, 07/08/2014 - 17:06 | 4936903 bigdumbnugly
bigdumbnugly's picture

oh, i am sure they'll do a great job with EVERYONE, rich and poor, in mind.

Tue, 07/08/2014 - 17:11 | 4936932 SoberOne
SoberOne's picture

2014, drop the 0, 14 divided by 2 is 7. Fuck you, IMF!

Tue, 07/08/2014 - 17:23 | 4936963 stant
stant's picture

Lagardes ouiji board is stuck on july

Tue, 07/08/2014 - 17:27 | 4936980 I am more equal...
I am more equal than others's picture

 

 

controlled collapse is gooberment speak for" we are going to crash the market so we can take control of everything."

Tue, 07/08/2014 - 17:28 | 4936986 PAPA ROACH
PAPA ROACH's picture

As long as it's gluten free, it will be great!!!

Tue, 07/08/2014 - 18:04 | 4937083 nope-1004
nope-1004's picture

Dude looks like a lady.

 

They're not going to pop the bubble?  LMAO.  How about "we will not monetize our bond purchases" by Bernocchio.  Or, "increases in food prices are a result of people seeking more sophisticated diets".

All banking scum lie.  When money is your God, lying isn't a mortal sin of lying... it's just another statement.  Damn right they are planning to pop this thing.

 

Tue, 07/08/2014 - 18:06 | 4937117 kaiserhoff
kaiserhoff's picture

Donkey Lady looks rode hard and put away wet.

If it had a brain, Yellen would pop this thing while it can still BLAME BEN.

More or less pushing on a string with QE matters not.  At this point, only interest rates matter.

Follow the Money!

Tue, 07/08/2014 - 18:21 | 4937192 Headbanger
Headbanger's picture

It's what I've been saying that the FEd is up against the dollar becoming worthless as it's losing status as world currency.

There's NO chance of a "controlled crash" now cause they went way too far with the QE bullshit for the sake of Obozo.

Good news is the price of everything will catch down to what real earnings are now.

Tue, 07/08/2014 - 18:31 | 4937249 stant
stant's picture

And the Mack daddy needs to go to Dallas in a convertible

Tue, 07/08/2014 - 18:34 | 4937267 Liberal
Liberal's picture

Can we please stop talking about this economics/finance stuff and talk about things that really matter, like the Hobby Lobby decision and gay marriage?

Tue, 07/08/2014 - 18:37 | 4937284 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

Spot on.

Tue, 07/08/2014 - 19:34 | 4937353 remain calm
remain calm's picture

Yellen can't control her bladder. How in the fuck is she going to control the biggest asset bubble ever created that makes even Greenspan envious.

Tue, 07/08/2014 - 20:18 | 4937682 Save_America1st
Save_America1st's picture

Ummmm....has there every really been any doubt what-so-ever?

 

#TREASON

#ENDTHEFED

#IMPEACHMENTISKICKSASS

#GUILLOTINESRULE

#BTFD

#STACKPHYZZ

you get the picture, bitchez...

Wed, 07/09/2014 - 07:49 | 4938779 Vagabond
Vagabond's picture

Are there going to be woman presidents in charge of both the US and the FED during the collapse?  What's that all about?

Tue, 07/08/2014 - 20:24 | 4937708 Stuck on Zero
Stuck on Zero's picture

Yellen can't possibly want a crash now.  There's still more to steal.

 

Tue, 07/08/2014 - 21:54 | 4938052 willwork4food
willwork4food's picture

Agreed. Why would the BIS and Yellen publically comment on this when they don't have to? Something is up. I think they are just marinating the public with 100% pure bad guy/good guy bullshit and wait for a juicy false flag event or natural disaster so they can shift the blame on helping rebuild the country.

Tue, 07/08/2014 - 22:52 | 4938254 CheapBastard
CheapBastard's picture

Greenspan and Bernanke have already controlled the collapse of the Middle Class. What’s left for her?

Wed, 07/09/2014 - 04:00 | 4938622 Squid-puppets a...
Squid-puppets a-go-go's picture

c'mon guys - over 280 comments on this thread as i write, and the essay is on the most vapor thin conjecture

I think its pretty obvious that yellen is just saying 'we wont deliberately pop the bubble, but dont expect us to ride to the rescue if it does burst'

Wed, 07/09/2014 - 07:47 | 4938786 Bindar Dundat
Bindar Dundat's picture

Right on SQUID!  That is exactly what she is saying.  

Wed, 07/09/2014 - 17:54 | 4941102 whyami
whyami's picture

You made me laugh!

Wed, 07/09/2014 - 17:54 | 4941103 whyami
whyami's picture

You made me laugh!

Tue, 07/08/2014 - 20:15 | 4937658 Ben Ghazi
Ben Ghazi's picture

Obummer will once again blame Bush.

 

Fed Fucks like Yellen will hide from this crash like cockroaches hide from light.

Wed, 07/09/2014 - 00:28 | 4938467 disabledvet
disabledvet's picture

Gay people can't shop at Hobby Lobby?

Tue, 07/08/2014 - 18:38 | 4937293 knukles
knukles's picture

Nope... A controlled collapse?
No more than orderly immigration.

Didn't get any better today, did it?

Wed, 07/09/2014 - 06:22 | 4938686 spankfish
spankfish's picture

"orderly immigration"... that is some funny shit.  Man, Yellen is one ugly woman.

Wed, 07/09/2014 - 11:17 | 4939565 SumTing Wong
SumTing Wong's picture

I keep saying it...

TPTB brought in a half-black man as Prez for when the SHTF politically, so why have they delivered a half-woman as Fedhead now???

Tue, 07/08/2014 - 18:41 | 4937306 CClarity
CClarity's picture

That is meant to distract you from the aholes at the top of the new world order.

Bring on ether, bitcoin, and government by proxy, not elected representation.  That model is so yesterday!

Tue, 07/08/2014 - 19:58 | 4937600 Tom Servo
Tom Servo's picture

Any coverage of riots in Brazil following their world cup ass whipping?

LOL

 

Tue, 07/08/2014 - 20:28 | 4937718 Ben Ghazi
Ben Ghazi's picture

Is the "Gay Whopper" available at Burger King yet?

Wed, 07/09/2014 - 00:32 | 4938473 disabledvet
disabledvet's picture

Absolutely. It comes with extra pickle. I've advised the market not to call it the "Gay Whopper" however. So we just call it "Happy Patty with extra pickle." Things are flying off the shelves.

Tue, 07/08/2014 - 21:40 | 4937990 stant
stant's picture

For the one who down voted me it gets cold in nov. he should fear his own more than me.. Keep your friends close and your enemy closer

Tue, 07/08/2014 - 23:03 | 4938291 toxic8
Wed, 07/09/2014 - 00:33 | 4938474 disabledvet
disabledvet's picture

I hear they have a secret handshake "involving sweaty wads of dough" as well.

Wed, 07/09/2014 - 06:21 | 4938685 zeroheckler
zeroheckler's picture

Mr. Lagarde is just taking the piss out of the extreme conspiracy-theorists!

Wed, 07/09/2014 - 10:20 | 4939337 DanDaley
DanDaley's picture

Don't read too much into this occult business...the French are stupid for all manner of pseudoscience, for example, you can't even get a job there without having your handwriting analyzed! 

Tue, 07/08/2014 - 18:31 | 4937254 NoDebt
NoDebt's picture

This whole article seems a bit like discussing advanced Rock/Paper/Scissors game theory.

Look, are we all invested in the idea that the Fed will print to infinity or aren't we?  Couple months ago, seemed like we were all in lock-step agreement.  Now all the second guessing and third guessing about this.

Tue, 07/08/2014 - 18:39 | 4937298 knukles
knukles's picture

Kinda, maybe and sounds like....

Tue, 07/08/2014 - 18:42 | 4937308 fonzannoon
fonzannoon's picture

I'm invested in the idea that the fed controis the bond market and by extension the stock market. There will be no overthrow of either one anytime soon. I see no reason why the biggest banks etc would blow their brains out or the fed would endorse it. I live 45 mins from the Hamptons and can assure you that they have nothing to gain from that. 

This is currently the biggest problem in the 1% Hamptons world right now

http://nypost.com/2014/06/29/when-socialites-call-sos-these-hamptons-wat...

Tue, 07/08/2014 - 18:51 | 4937347 knukles
knukles's picture

OK Fonz....
You're one of their neighbors, do something about it, for fucks sake!
Bitch, complain, boycott their stores, picket their driveways, shit on their lawns, piss in their pools ...
Wrap dead fishes in their newspapers for fun.
Light paper bags of poop on their front steps,  ring the doorbell and run, hiding behind a bush, laughing maniacally.
Just fucking Do Something!

Denise Rich dies on her boat.  Are we talking the one and only very same Denise Rich wife of Markie Mark "Got My Pardon from Slick Willy, Bitchez" Rich?
I mean fucking seriously.
DO SOMETHING, GODDAMNIT!

Tue, 07/08/2014 - 18:58 | 4937377 kaiserhoff
kaiserhoff's picture

At least, fart in their general direction.

Tue, 07/08/2014 - 19:10 | 4937423 knukles
knukles's picture

Yes.
Didju hear that Fonz?
Every journey begins with the smallest step.

Fart at them.

Better yet, go into a really fancy restaurant and get seated next to a bunch of them and crap your pants, act like nothing's wrong and see how long it takes them to act up like a bunch of immature, problematic, self centered children.

Go for it, bud.
I gotchur "back" (side) on this one!
I'll be there with you in spirit.
You can count on me
And Kaiserhoff, too.
Right Kaiser?

Go for it!
You could be headline news on page 6 of the NY Post.
Even make it to one of them crazy guy's radio shows.

Damn, Fonz, this may be one of my better ideas

 

Tue, 07/08/2014 - 20:31 | 4937732 jbvtme
jbvtme's picture

i still can't fathom how the bottom of the gene pool rises to the top of the food chain...

Tue, 07/08/2014 - 22:42 | 4938231 Yes_Questions
Yes_Questions's picture

 

 

cover.

 

see: G.W. Bush

 

but that just gets to the Why.

 

How?  The well-heeled harvest their stables of ne'er do well inbred offspring to take the helm when the light of day gets close to their shadows if only to rule for another decade.  The OWNERS breed lowers into the mix to keep you and I perplexed.

 

Tue, 07/08/2014 - 19:10 | 4937427 fonzannoon
fonzannoon's picture

I cropdust any chance I can out there.

Wed, 07/09/2014 - 00:42 | 4938486 disabledvet
disabledvet's picture

Show up to social functions wearing only a bow tie.

Ask for "dry martinis" just like the millionaire in Gilligans Island.

Try and "blend in."

Crash weddings while not two, not three but a SOLID four sheets to the wind. And OBJECT to the matrimonial bliss on account of, well...you're allowed to do that.

Then barf on everyone sitting in front of you.
But don't forget to apologize!
Claim you have an illness of some sort that makes not being naked and barfing downright impossible.

And of course while wretching be sure between "puke spits" an exclamation of "I'm good for the thank you not!"

Wed, 07/09/2014 - 06:52 | 4938722 Seer
Seer's picture

You're becoming more and more likeable :-)

Tue, 07/08/2014 - 19:00 | 4937388 booboo
booboo's picture

I see, so living in such close proximity to faux wealth is your qualifier? The Hamptons? By the way, the biggest banks blew their brains out in 07, so what, they are bigger today with less compitition. I'm not sure you know how this really works.

Tue, 07/08/2014 - 19:14 | 4937409 fonzannoon
fonzannoon's picture

the big banks blew their brains out in 2007? wtf are you talking about? Why would they need to do that again?

I'm not so sure you know how this really works.

faux wealth? 

and yes, i feel good letting everyone know that everyone in the hamptons is just fuckin peachy and don't need a collapse to get peachier. They are fine as is.

 

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