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Summing Up Fed Policy In 2 Words: Vroom... Crash

Tyler Durden's picture




 

Submitted by Scotiabank's Guy Haselmann,

In Loving Memory of Dear Great Aunt Addy

Hear ye, hear ye, Fed policy is hereby bestowed the name “Great Addy Policy” in memory of my great aunt who drove with one foot on the accelerator and one foot on the brake. This is fitting since the FOMC is physically applying the brake by ending its asset purchase program in October, while simultaneously blowing hot air into the accelerator in the form of promises of continued accommodation.

Aunt Addy was unaware that operating the car in this manner would cause long run damage. Had she known, she may not have cared: the car moved forward, while it was being held back. At that current moment, she felt safer due to her misguided belief that she had greater control of the car.

For those who went along for the ride on trips to the ice cream shop, it was a terrifying and high-stakes adventure. Witnesses (the adults who stayed home) deemed her effort to get to the destination, heroic. However, everyone knew that over time the ‘game of chicken’ dangers grew ever-greater.

“Great Addy Policy” will be evident this week. The Fed Minutes on Wednesday will likely read a tad hawkishly, while Yellen’s Jackson Hole speech on Friday morning will likely provide more dovish pleonastic gobbledygooked bunkum.

The Fed Minutes could read a tad hawkish, because economic data going into the July FOMC meeting had been improving, and also because Charles Plosser dissented. He felt including the words “considerable period” was inappropriate because “such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals”. Moreover, although Richard Fisher did not dissent, he likely advanced and broadened Plosser’s line of reasoning.

Yellen’s speech on Friday will likely discuss labor slack as a justification for uberaccommodation. It will be evident that Yellen is a Tobin Keynesian and Galbraith interventionist. She’ll sound professorial and academic, but for Fed critics it will do little to help them understand the logic behind the recent-year extraordinary actions of the FOMC.

Critics will continue to point to the time-inconsistency underlying their actions. Specifically, there are tradeoffs whereby slightly more growth and employment today gets exchanged for significantly greater instability and higher unemployment later.

The FOMC has used experimental tools for so long to keep the accelerator pressed that it fears what happens when the car stops. Therefore, the FOMC believes they have little choice other than to keep the car going forward, which works until it doesn’t. The risk/reward tradeoff continues to skew unfavorably. The farther markets move into the right-tail side of the distribution curve, the deeper they will eventually more into the left-tail. Vrooom...Crash.

The Galbraith-esque Fed believes it knows best. It believes that it has the authority to keep spiking the punchbowl and that it has the knowledge to know when and how to intervene in financial markets. It was easier for Aunt Addy to trudge down the highway at a steady pace than it was for her to make turns or park the car.

Details of the Fed’s exit strategy loom in coming months. This week may offer a glimpse of the Fed’s stop-and-start journey; one that is peppered with bouts of confidence and the fear of not arriving at the proper destination fully intact - or at all.

“Beware; for I am fearless and therefore powerful” – Mary Shelley

 

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Tue, 08/19/2014 - 17:58 | 5116824 order66
order66's picture

Perfectly normal. Carry on.

Tue, 08/19/2014 - 20:33 | 5117675 MalteseFalcon
MalteseFalcon's picture

Oh, the FED's policy might cause damage to the economy.  Well it has seriously damaged the economy for 20 years at least.  But the FED has not damaged their constituency.  Quite the opposite.

Do you think the FED's constituency cares if the US has a 'vibrant' middle class?

And forget about pitchforks.  They have homes all over the world.  They'd be on a private plane before you got your neighbors together.  You'll end up fighting the police and/or negroes with pitchforks.

THE END.

Tue, 08/19/2014 - 22:29 | 5118139 wintermute
wintermute's picture

OK. In the image the Fed's foot is on the brake. 

The Fed has no brake. Need a new image.

Tue, 08/19/2014 - 17:55 | 5116834 explosivo
explosivo's picture

I wish this Fed car analogy would just die already. They can't control the economy any more than the politburo could. They can only steal from hard working people and allocate the loot to their desires. 

Tue, 08/19/2014 - 18:00 | 5116864 Itchy and Scratchy
Itchy and Scratchy's picture

Well put!

Tue, 08/19/2014 - 19:06 | 5117259 Hohum
Hohum's picture

explosivo,

Right on.  The Fed redistributes wealth; it does not create it.

Tue, 08/19/2014 - 18:04 | 5116884 BobRocket
BobRocket's picture

Glitch in the matrix then, I just saw two duplicate entries under this heading (0) and (1), I just responded to this one and there were 3 comments, I got an error and now there are only two comments.

 

Internets have been plagued for days, the whole system is coming apart.

 

Just remember that peer to peer means posting what you want to say in a public space (on paper if needs be), if your message has legs it will be transmitted by shortest available path, the PTB rely on electricery, DNS and a myriad of other infrastructure related stuff that relies on ordinary people to keep it going and collapses at the drop of a hat.

 

 

Tue, 08/19/2014 - 18:12 | 5116930 LawsofPhysics
LawsofPhysics's picture

Have a look at the Fed's balance sheet and adjusted M2 money stock.  Exit you say? Shit, show me the fucking "taper".

Tue, 08/19/2014 - 18:33 | 5117076 disabledvet
disabledvet's picture

With M2 still on the flat line "show me the QE"!?

Wall Street didn't just cease to exist because of 2008. Instead we've had a moonshot in investment with Zippo for an economic recovery. That says to me prices for physical goods will fall.

In Europe...especially post Crimea...they're plunging. Since spending hasn't stopped "there is bang for the buck" on the table.

Tue, 08/19/2014 - 18:37 | 5117101 Let them eat iPads
Let them eat iPads's picture

Keanu Reeves for Fed chairman.

Tue, 08/19/2014 - 19:51 | 5117479 Bunghole
Bunghole's picture

Fuck that.

We need Dwayne Elizondo Mountain Dew Herbert Camacho

http://vimeo.com/82074066


Tue, 08/19/2014 - 18:39 | 5117110 ebworthen
ebworthen's picture

One thumb on the plunger of the heroin syringe, one thumb on speed-dial for the Narcotics Anonymous help line.

Tue, 08/19/2014 - 19:05 | 5117251 Hohum
Hohum's picture

Solution: reverse repos /s

Tue, 08/19/2014 - 20:15 | 5117591 Himins
Himins's picture

If you chart the speed of an airplane while it is in a tail spin, THAT,... is a pretty good looking graph. Till it ain't

Tue, 08/19/2014 - 20:15 | 5117593 Himins
Himins's picture

If you chart the speed of an airplane while it is in a tail spin, THAT,... is a pretty good looking graph. Till it ain't

Tue, 08/19/2014 - 20:14 | 5117596 Himins
Himins's picture

If you chart the speed of an airplane while it is in a tail spin, THAT,... is a pretty good looking graph. Till it ain't

Tue, 08/19/2014 - 20:59 | 5117793 roccman
roccman's picture

peak oil is being defined by global economic collapse...only thing that will "increase" supplies is demand destruction...ebola anyone?

Tue, 08/19/2014 - 23:39 | 5118412 yogibear
yogibear's picture

It will be quite a sight to see the Federal Reserve panic when a currency crisis arives. Petrodollar is slowly becoming history.

But first we will see the Federal Reserve's  Greenspan and Bernanke's grand printing experiment called Japan implode first. Then down the road the US a bit later.

Wed, 08/20/2014 - 08:37 | 5119119 AdvancingTime
AdvancingTime's picture

I agree Japan is going down. Japan is facing a wall of debt that can only be addressed by printing more money and debasing their currency. This means paying off their debt with worthless yen where possible and in many cases defaulting on promises made. Japan's public debt, which stands at around 230% of its GDP and is the highest in the industrialized world.

 The moment the Japaneses stock market fails to rise enough to offset inflation this will turn into a tsunami of  money fleeing Japan and constitute the end of the line for those left holding both JGBs and the yen. This has been a long time coming and I contend the cross-border flow of money leaving Japan is why some stock markets have remained so resilient . When Japan crumbles it will be felt across the world, we often forget how large a role they play. More on this subject in the article below.

 http://brucewilds.blogspot.com/2014/05/japan-sliding-towards-abyss.html

 

Wed, 08/20/2014 - 04:43 | 5118842 orangegeek
orangegeek's picture

Fire yellen, hire Mrs Doubtfire.

Wed, 08/20/2014 - 08:38 | 5119124 AdvancingTime
AdvancingTime's picture

The forces that have driven stock markets ever-higher and upward may be beginning to wane. Many markets became distorted years ago when QE and super low interest rates hit the economy in an effort to lessen many of the missteps of recent years.

This has been more helpful in holding up the underlying value of assets and derivatives it now appears than helping to repair a wounded economy. QE has up to now stopped an implosion of derivatives including the resulting contagion and shock that would have spread throughout the financial system. Unfortunately the economy has not fared as well as these asset prices and in many ways these policies have harmed Main Street. More on this subject in the article below,

http://brucewilds.blogspot.com/2014/05/facing-our-economic-armageddon.ht...

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