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Former Fed Governor Says Fed Lost Credibility To "Stay On Top Of Ticking Monetary Bomb"
Submitted by Wolf Richter via WolfStreet.com,
Lawrence Lindsey, a Governor of the Federal Reserve from 1991 to 1997, was right before. And got fired for it. Reality was too inconvenient.
In December 2002, as George W. Bush’s economic adviser and Director of the National Economic Council at the White House, he fretted out loud that the invasion of Iraq would be a lot more expensive than supporters of it were claiming. Clearly he’d failed to drink the Kool-Aid. Instead of peanuts, it would cost as much as $200 billion, he said. It shook the White House at its foundations, the fact that he had the temerity to say this.
The Atlantic explains:
Bush instead stood by such advisers as Paul Wolfowitz, who said that the invasion would be largely “self-financing” via Iraq’s oil, and Andrew Natsios, who told an incredulous Ted Koppel that the war’s total cost to the American taxpayer would be no more than $1.7 billion.
As it turns out, Lawrence Lindsey’s estimate was indeed off — by a factor of 10 or more, on the low side.
So maybe people should listen to him. And maybe, if his record repeats itself, the disaster he warns about is going to be a lot more costly in the end than the worst-case scenario he is now predicting.
Lindsey was speaking during a panel discussion on Fed policy at an event sponsored by the Peterson Foundation, MarketWatch reported. And once again, he dared to say what everyone already knew, but what the financial establishment on Wall Street fights tooth and nail:
The Fed has dragged out the normalization of interest rates “way beyond what is prudent.”
He explained that in graduate school, if you suggested that the federal funds rate should be kept at zero while the unemployment rate is 5.4%, which is exactly what the Fed has been doing, “you would have been laughed out of the classroom.”
“At some point we’re going to get a series of bad numbers, showing a little higher inflation, and the market is going to say ‘on my god, we’re so far behind the curve’ and force an adjustment that is going to be wrenching,” he said.
According to his calculus, when this “wrenching” adjustment kicks in, it would turn into a market disruption at a level “seven or eight” on a scale of 10, with 10 being the worst.
But that’s the guy that warned that the total cost of the Iraq invasion would be $200 billion, instead of peanuts, and later it turns out to amount to $2 trillion. So by how much is he underestimating the ultimate debacle with his prediction of a “wrenching” adjustment of “seven or eight” on a scale of 10? Maybe we’re better off not knowing the answer.
So what should the Fed do to mitigate the risk of this sort of bone-chilling bond market? Start hiking rates. Start with modest hikes. But start in June.
But it may already be too late.
He said the Fed “has almost no credibility” with his clients about its ability to “stay on top of ticking monetary bomb.”
Stocks are at all-time highs. The party is just too fun to walk away from. Money is once again flooding into even distressed energy-related junk-rated companies that are once again able to sell bonds on a wing and a prayer because yield-starved investors, brainwashed by the Fed’s interest-rate repression, are chasing yield wherever they can find it, no matter what the risks.
Times are good, and everyone is having fun now. But it won’t last: “the market is going to take the Fed and the Treasury curve to task in a very painful way,” he warned.
Rate hikes would have a long way to go: If the Fed raised rates by a quarter percentage point at every other meeting starting this June – oh my, can you see the tantrum already? – monetary policy would not actually be restrictive until December 2016, he said.
Going that far, ever, though it would only mean going back to “normal,” would be plain unthinkable for Wall Street hype mongers that have conniptions every time the Fed contemplates raising rates just once, and just a quarter point, just to show that it’s still there, even if it has no intention whatsoever of staying on “top of the ticking monetary bomb.”
A disturbing scenario is already playing out for folks fretting about “financial instability,” as it’s called in central-bank jargon. Read… “Buyers beware”: Capital Markets “Completely Backwards”
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I have no counter party risk. Just party.
The wrenching adjustment will be a 10 on a scale of 10.
Shit'll buff out
You can't polish a turd.
If this guy thinks unemployment rate is really 5.4% he is the one that needs laughed out of the class room. The Fed is correct in keeping rates at 0% IMHO. Also he should know you don't raise rates going into a recession.
Former Fed Guv still qualifies for the guillotine list.
He looks like someone that would show up to meet Chris Hansen. All sweaty with a six pack, box of rubbers and a chipwich ready to party with a 12 year old.
Spot on. If the Fed raises rates the rise should be 10 basis points not 25 since market rates are so low for so long. " Normalization " should happen more slowly since the Fed has caused so much distortion and will get the blame when the SHTF.
The Fed Deserves the blame because it has earned it!
Wall St. is not in a recession, fool. Raise rates!
More like 100 on a scale of 10
Maybe he ranks the Financial Crisis at a 3 and the Great Depression at a 5.
I wonder how many insiders have to come out and tell the truth before the market will take notice. Greenspan, Gross, Dalio ect...
Fuck that shit.
"Ours goes to 11..."
https://m.youtube.com/watch?v=KOO5S4vxi0o
I think he should rate it a 3. Based on how many Clydesdales it would take to pull that FED bought and paid for hooker Yellen off his face after the parties over.
more like a 7 or 8 sigma event
Ban KKiller wins this thread with his opening salvo. It simply has to be vexing to doomers and the shorts to watch this long-term insanity. Here's the reality. Ignore the stupid UI numbers. Many among the unemployed are working as WalMart greeters and burger flippers, living in their parent's basement or a cardboard box. But that's the wrong metric. The metrics you should be watching are the S&P500 and the DJIA, which are both currently orbiting Saturn and Jupiter. The U.S. would sooner go to war against the BRICs to protect Bucky than they would take away the punchbowl at this party. Party on, dudes.
no worries, they'll defuse it with some unicorn vomit! BUY ALL THE THINGS!!
The Bond Market is a sand box.
A sand box...
the bond market
is a litter box
and the cat weighs 37 lbs
That cat will shit bigger than my beagle!
Someone who dares to speak the truth who used to be part of the cabal????
Take him off to the re-education camp immediately!
Well, if you're gonna do that, STEAL his sheckels first!
Lawrence Lindsey ~ a member of Alpha Rho Upsilon
Which is to say... Yet another (it NEVER ENDS), jew or crypto jew FED employee... Telling us what we need to think...
So this so called expert does not understand that the bubble stays and or grows until they stop pumping it and no sooner?
The only reason we don't have QE forever is because THE FED CHOSE (key word there) TO STOP! How did this guy skip over such a minor point?
A 5 basis point rise.
meh
They never give up the perpetuation of the bullshit, and then people wonder why we Rinse & Repeat...
The oil was NEVER going to pay for the invasion, not one dime.
Oil-for-Food was UN corruptocrat cash cow, and more importantly, Iraqi oil revenues (or the 30+ billion in UNCC claims that Iraqi oil revenue was earmarked for) was the price for using Kuwait as a launching pad in the invasion.
Either Paul Wolfowitz was the 12th man on the deal team, and ranked lower than than some anonymous guy posting on a fringe blog, or Paul Wolfowitz lied to Congress (and conceivably also to the wigger in the White Hut, but Diminished Capacity Dubya was also being advised by guys like Colin Powell and James Baker who were most certainly aware of Kuwait's "issues").
The coalition of the willing , was, in fact, a coalition of the bribed.
He must be an anti-semite.
Definitely an Israel hater.
Paul Wolfowitz - one more neocon traitor.
To the ninth circle with all that vile swine.
Sadly, 99 out a 100 Americans have no idea who Paul Wolfowitz is.
Paul was one of the dancing Israelis wearing a mask on 9/11.
/LOL
still riding that tired blame Bush? How about Clinton gutting the CIA just before 9/11 or the last 7 years of rescue the rich! Obama has done more harm to world than Bush and Clinton combined. I think Obama has done more harm that Carter. Obama has unleashed the radical muslims like no one before! Bush won the Iraq war...and Obama and Clinton lost a won war. Please explain why Saddam was such a great guy?
WTF are you yapping about?
Who the fuck is promoting any of these useless pricks? Wake up you dummie...you're way off.
"Please explain why Saddam was such a great guy?"
A smiling Rumsfeld shook Saddam's hand, when Reagan was president. It didn't matter that Saddam wasn't such a great guy.
Please have intelligent insight! Red and Blue is an ILLUSION, Moron!
https://www.lewrockwell.com/lrc-blog/u-s-implements-the-wolfowitz-doctrine/
It's times like this - when we're very possibly facing financial Armageddon - that we don't need anyone telling the truth. Treacherous I say!
Conniption bitchez.
The Jew is the smartest.
Let the Jew fix it.
Congress must find a new way to exercise our monetary system inside the government and under constant purview with full transparency to the public, no exceptions. Transition and elimanate the Federal Reserve by setting a future date to repeal and replace the Federal Reserve Act.
Good luck with that idea. Nail guns are always a convenient solution to every day problems and annoyances.
So Lindsey is worried about the Fed not normalizing in an environment where UE = 5.4%. But......UE doesn't equal anywhere close to 5.4%. That number is total BS with 1 in 3 working age Americans not counted in the labor force. The Fed is not only terrified of a market spasm (and vanishing phantom collateral), they also know that the "economy" remains a complete zombie. They may try to nudge rates by 25-50bps for political show, but we'll never see "normalization" again in our lifetime.
Well then maybe they ought not propagandize the data. Seems one hand doesn't know what the other is doing...
It's called mutual masturbation. The Fed and the Markets, jerk each other off and we get to clean up.
Personal Accountability. Mrs. Debtfire and Captain Counterfeit have none.
When this shitshow folds, they should get lifetime jail sentences, at the very least.
Nope. Executions by (fill in the blank) for TREASON and TERRORISM...
Then put the corpses in jail whilst they await a fair trial.
Fine. But you pay their lifetime in jail.
Just buy the fucking dip so you can also become a broke serf.
This next 'adjustment' is going to eleven!
guess who will bail out the rich next time?
Is it like an 8 on the Richter scale with a 10 to the exponent 8, he didn't say. That would level the playing field in a very literal sense.
He said the Fed “has almost no credibility” with his clients about its ability to “stay on top of ticking monetary bomb.”
The global credit bubble is over 200 trillion. That is what's ticking.
But unemployment is NOT at 5.4%. So go away Lindsey.
Here's the guy who married George Stephanopoulis' mother-in-law:
Mr. Cabot has been the chairman of the Federal Reserve Bank in Boston, the chairman of the Brookings Institution in Washington and the chairman of the America's Cup Foundation.
http://www.nytimes.com/1997/06/01/style/mabel-brandon-and-louis-cabot.html
fn pussy wanker! he has no balls! qe to infinity and beyond! we'll all be rich..........except for you, you pitiful breeder eater.
The black market has been institutionalized by the Fed's ineptitude
The FED doesn't have any credibility at all.
Except from their zio media cheerleaders and politico puppets they own.
He said the Fed “has almost no credibility” with his clients about its ability to “stay on top of ticking monetary bomb.”
Since the beginning, the Fed has botched every attempt to manipulate the economy. The Great Keynesian Experiment has failed and now it is just a matter of time before the Creature from Jekyll Island fails to exist...
http://www.globaldeflationnews.com/the-creature-from-jekyll-island-the-e...
ooops
No one saw it coming.
Reagan's 'Trickle-Down' got the debt rolling with a terrible economy.
Reagan is 'Baby's Feet`little Abner's, aka, Bush Jr., idol!?! If the cowboy boots fit, wear em?
Do you actualy think that two-hijack'd airplanes could knock-down both World Trade Centers without alittle inside help?
All intelligence agencies knew that there was a very strong possibility of sabotaging the WTC with Commercial Airplanes. The terrorist had tried before a few years back with manure:-). Remember? The 'WTC' was strickly symbolic. The terrorist could have hit CitiBank, Bank of New York, or J.P. Morgan Chase and have shut-down the entire world's commerce, and yet they chose the WTC.
The intelligence was there. Clinton gave Bush all the info, and warning signs, and yet, Bush ignored everything. Why? Ask Richard Perle, Feith, Cheney, Libby, Wolfowitz, Rumsfeld, Woolsley, and Israel's Likud Party under Arial (Netanyahu!) Sharon, and Saudi Arabia's Bandar (Bush?) for the answers.
Marvin Bush was ahead of secuity at the WTC and also directly involved with the security team/firm in the Oklahoma bombing.
Coincidence?
Bush doubles the deficit giving freebie to all his oligarchy cronie`philes! Every 'God Damn'd One' of the Religious Right, got a woody?Holy-Cross to stuff-up liberal america's ass, with the Baptist voting in flocks for their new messiah! (Something, Jeb[baby-baby bush] is working on as I write?).
Obama is just a torch bearer of the continuum bankrupting America,... already having double Bush's debt in only six years. I ask Why?, again!
Simple! They want War! Period!!!
It will lower the population, wipe out debt, and reset the NWO agenda into Phase III where a "One-World-Order" will finally control all minds great and small!
We're all debt slaves now anyway.