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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SMG's picture

"Yellen is going to orchestrate a controlled collapse."

HA! Good luck!

bigdumbnugly's picture

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

SoberOne's picture

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

stant's picture

Lagardes ouiji board is stuck on july

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."

PAPA ROACH's picture

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

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.

 

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!

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.

stant's picture

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

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?

knukles's picture

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

Didn't get any better today, did it?

spankfish's picture

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

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???

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!

Tom Servo's picture

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

LOL

 

Ben Ghazi's picture

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

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.

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

disabledvet's picture

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

zeroheckler's picture

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

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! 

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.

knukles's picture

Kinda, maybe and sounds like....

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...

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!

kaiserhoff's picture

At least, fart in their general direction.

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

 

jbvtme's picture

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

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.

 

fonzannoon's picture

I cropdust any chance I can out there.

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!"

Seer's picture

You're becoming more and more likeable :-)

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.

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.

 

NoDebt's picture

When you start making that much sense, I grow concerned we're both missing something.

Grande Tetons's picture

Notice...Fonz used the word Peach twice. The has something to do with peaches or Ty Cobb. 

Georgia Peach...drop the....peel....

fonzannoon's picture

You ever see the interview with Cobb when when he was really old and the interviewer read him his stats and said "if you were playing today, what do you think you would bat?" and he said ".325". The interviewer said, "really. that is below your career average" and he said "i'm 75 years old". funny stuff.

centerline's picture

+1 fonz.  The TBTF know they arent getting bailed out again.  Public opinion wont stand for it.  The FED plays a bigger game.  Financial crisis = soveriegn crisis = political crisis = public crisis (currency crisis).  We are somewhere between stages 2 and 3... maybe not even at stage 3.  This crap takes time to run out.  Like a dying business that still has cash flow.  The "robbing Peter to pay Paul" sort of action can go on until cash flow really chokes and there aren't any more checks to kite.  

TrustbutVerify's picture

Public opinion is completely ignored at this point.

Seer's picture

Problem is that we don't have enough FACTS: we are drowing in a sea of "opinions" (thinking that opinions actually matter).

Seer's picture

center, thank you for helping provide clarity/logic to this "discussion."

It always amazes me how on one hand folks can talk up about how the Fed/govt can NOT create anything and then on the other hand expect them to do something.  Yes, I get it that we (well, I DO) want them to STOP DOING and to just get out of our lives, BUT, that WON'T "solve" our REAL PROBLEMS!

How much more do we expect these people to do to tell us that growth is dead?  The entire fucking game is predicated on growth and now that growth just cannot happen anymore, well, how difficult is it to figure out that dividing by ZERO gets us ZERO?  Those believing that the Fed/govt are only obstructing us from nrivana need to actually use brain cells to analyze the situation (or fess up that they're being disingenuous- that they're only being deceptive in order to try and bilk out an extra few crumbs for themselves: I get this, and well... FINE! do it, but STFU about slathering it in pure BS about how we can all be saved by some sort of "pure system" that is, of course, predicated on perpetual growth).

The LAST thing that these folks (TPTB) want is to change things.  They KNOW that the entire System is unable to deliver and is therefore unable to provide any semblance of predictability of their future being like their past (maintaining control).  All that they will do is to continue to do what they've been doing until they can no longer.

The world has pretty much been faking growth since the early 70s.  It's the end of the line for the smoke and mirrors game, and with it nearly all of that we see around us.

Escrava Isaura's picture

Centerline,

Taking from Paul to pay Paulette I find it more accurate than to pay Peter. In any event, great comment.

Seer....,

What can I say! You’re in a league of your own. Don’t ever stopping writing.

By the way, do you both comment in any other blog? And, what’s your favorite blogs?  

DanDaley's picture

All that they will do is to continue to do what they've been doing until they can no longer.

 

Usually when people think that they are losing control, they try harder to control things...governments, too.  This is why they are preparing for some sort of armageddon, arming up every conceivable government agency to the teeth.  

 

You're right, though, exponential growth is a fiction, and the only sustainable thing is say, 1 million people per continent...but how do you get to something even remotely close to this? 

whoopsing's picture

Fonz, the bays can be  hairy, all you see is surface and think " oh, I have plenty of room " as you drift out of a channel and BAM drive your skag into bottom mud . I'm a neophyte captain and I have to tell you it is extemely challenging .  I never had to call sea- tow though.

fonzannoon's picture

yeah man I spent a lot of time on those bays. real muddy so you don't smash up the boat but you only draw a couple of feet and if you wander outside the channels by even a few feet you are done.

Seer's picture

Oh the sailing stories that I have to tell!  Tip: NEVER trust your gold with me!

Better mud and sand than ROCK! (fortunately it was a only a skim off the top of the rock- boat's owner had once slammed at nearly hull speed dead into one and a haul-out showed no damage- hell-for-stout, quality stuff is nice!)  Or docks! (at some remote place where someone I knew just happened to be there to see it!)

villainvomit's picture

nothing to gain from short selling before a violent or controlled melt down ?

That's a nice trade if you know it's coming ~