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Why the Fed will change its exit strategy…again
This blog entry was originally posted at Bawerk.net you may also follow us on Twitter
In a press release dated September 17, 2014 the Federal Reserve updated their "policy normalization principles" that was laid out in 2011 when our monetary masters first flirted with the idea of "green shoots" turning into "escape velocity." As mission got closer to completion eternal bliss for all subjects lucky enough to be under the reign of enlightened central planners was clearly within reach. Without the steady guidance and micromanagement of the Politburo we would all be jumping off the nearest high-rise as approximately 37 per cent of the US population apparently did in the 1930s.
Now, it did not quite work out that way and the normalization plan has been just as dormant as the economic promised land. Maybe, just maybe hope is not a viable long term plan after all. If household spending behaviour is really caused by perceptions about the future, neatly discounted into a surging Russell 2000, then, and only then, would our Ivory Tower economists be right. However, if that was the case there would be no need for scarcity in this world and we could essentially return to the Garden of Eden and live happily ever after.
The real world is unfortunately more complex and as shown by Ludwig von Mises, in his article of 1920 called "Economic Calculation in the Socialist Commonwealth," there cannot be a pricing mechanism in a centralised society without a free market and if there is no mechanism for honest pricing there cannot be rational economic calculation.
In this light, isn't the whole purpose of Federal Reserve, and their brethren's, market interventions attempts, so far successfully, to impose upon free society a pricing structure that differs from the free market outcome?
Prices are like traffic signals, guiding resource flows, but if for some reason resources starts to flow in a direction that does not fit with some grand master plan our self-proclaimed money masters have laid out, they find it fitting to change its direction at their own discretion.
Who, in their right mind, would suggest that in a free market the most insolvent government on the planet, Japan, can fund itself for mere basis points when they have an explicit strategy to debase their currency by two per cent annually?
Have we not taken a giant step towards the society Mises suggest cannot perform rational economic calculation? And if we have, does this not mean vast amounts of resources are routinely being misallocated?
If resource flows have become distorted from all the monetary shenanigans witnessed over the last years it is a safe bet to assume it will resume its original, or intended rather, flow as central bank excesses are reversed.
And this brings us back to the press release which clearly states that the "...committee expects to cease or commence phasing out reinvestments" of securities holdings currently on the Federal Reserve balance sheet after it raises interest rates.
Now, we assume that the first 25 basis points to the Federal Fund Target Rate will come in September, the Fed should stop their reinvestments shortly after. By looking through the Federal Reserve balance sheet by CUSIP we can calculate the current maturity profile of both TSYs, TIPS, Agencies and MBSs which is provided in the chart below.
While there is no problem for 2015, by 2018 over 30 per cent of TSYs will have disappeared from the Federal Reserve's balance sheet assuming no reinvestments. Since the US government is running a deficit, this means the reduction in Federal Reserve TSY holdings can be considered net supply of TSYs because the US Treasury will have to issue bonds to repay the Fed, and these bonds must be absorbed by the private sector.
With good collateral being in short supply these days added bonds will probably get bid within a reasonable, but presumably lower, price than today, but funding for extra TSY flow will come by through reallocation of existing private portfolios.
From the chart we see there will be a spike in H1 2016 and then the run-rate drops to around USD50bn per quarter until another spike in 2018.
With expected return on risk being what it is, one should not be surprised to see increasing market volatility as the Fed withdraws and the private sector tries to take up the slack.
Unless the economy tanks completely (more on this in a upcoming post) and added QE is felt necessary the Fed will be forced to continue to roll-over TSYs in perpetuity with the odd attempt to scale down the reinvestments to, say, 90 per cent of par, then 80 and so on.
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The FED's exit strategy is similar to a horny 18 year old boy practicing the withdrawal method: I'm gonna pull out, I promise!
Exit strategy?
The Fed's "Exit Strategy" is to be scared shitless, place blame on others, and then start printing like a MoFo.
What's changed?
Everyone knows that politicians will want the easy way out.If anybody thinks that the Federal Reserve is somehow seperate from the U.S. Government,they're living in a dream world.$20 trillion of debt plus all of the unfunded liabilities ($200 trillion going forward)must translate into eventual inflation.The reason being to have future debt look small through " Money Illusion".The theory is to bring the economy onto a "new level" through controlled inflation,where the Central Bank claims to have more experience.Question is,will they be able to control the Genie when he's out of the bottle?My guess is no,but they have to do it.
Apparently no one even edits the headlines.
Can't think, can't write for beans.
Why do I read ZH again?
we be reading for that feeeling....oye
I usually refrain from being a grammar nazi...but I feel certain now, what my grade 9 English teacher must have felt reading my shit.
Somebody give this writer a few bucks to take a remedial writing course.
Mr. Vigor
I appreciate your kind words. Please send your donations my
way at your earliest convenience; it will come in handy.
Thank you.
Best wishes
Bøhm-Bawerk
I think the writing is fine. I'm interested in the next post concerning economic fallout. Thank you for your contribution.
This garbage is written and pasted so poorly that it is not worth your time to read it.
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobs-review.com
The only thing the fed is mopping up is loose unallocated gold!
First rule of the Federal Reserve, never reveal the truth of the ponzi.
=== ‘LTL’ (let’s talk live) ===
http://www.ftm.nl/exclusive/follow-the-money-selecteert-11/
Netwerk @MinPres heeft nog steeds geluk dat de redactie van de Volkskrant de emailtjes van onze redactie niet doorstuurt naar DunkendeThomas.
http://www.volkskrant.nl/dossier-thomas-von-der-dunk/misschien-wordt-het...
Dan had hij geweten dat Jesse Feras Klaver de rol van Schoppen7 gaat spelen. Wat Klaver namelijk van de meeste politici onderscheidt, is dat hij de waarheid wil horen. Netwerk @SuperWil acht verder de kans groot dat de Europese beleidsmakers voortgaan met het doormodderscenario die KlaverenTeam heeft ontworpen.
http://www.nrc.nl/nieuws/2015/05/31/rinnooy-kan-d66-blijft-constructief-...
Doordat D66 geen toegang heeft tot het gebeuren in hotel GradjA kon Alexander Rinnooy Kan bij @BuitenhofTV niets anders vertellen dan dat ‘de bereidheid om constructief gesprek te voeren’ voluit aanwezig is. Als oud-voorzitter van de Sociaal-Economische Raad (SER) heeft hij de klok "over de impact van de 'wiskundige definitie van de absolute waarheid' op de huidige wereldorde" horen luiden. Al is hij niet de man die voorkomt in het script van de 3e SpinozaGolf.
Schoppen7: "Als wij eenmaal aan de macht zouden komen, zou alles beter worden. De bittere werkelijkheid is dat de hele wereld in brand staat. En we kunnen daar niemand anders de schuld van geven dan onszelf."
http://www.trouw.nl/tr/nl/4496/Buitenland/article/detail/4039001/2015/05...
Mark Rutte zou moeten weten dat 'de reeks pijnlijke integriteitsaffaires in de VVD' te maken heeft met het feit dat het AANDACHT=LIEFDE-paradigma nog steeds niet in de Tweede Kamer is behandeld. Op het VVD-congres in Arnhem maakte de liberale premier dan ook duidelijk dat 'de Grote Dikke IK' (het kankergezwel van overheidsinstanties die elkaar bezig houden) af moet slanken.
http://www.trouw.nl/tr/nl/4324/Nieuws/article/detail/1674610/2007/09/08/...
In een cultuur van waarheiddelen met een @basisinkomen voor eenieder 'zorg je voor jezelf en geef je om een ander'.
http://nieuws.nl/economie/20150531/uitkeringsgerechtigde-met-schuld-komt...
De UWV is er inmiddels achter gekomen dat 'uitkeringsgerechtigden met schulden moeilijker aan het werk komen' en zich afkeren van het systeem 'Liegen om te Leven'. Ook het feit dat netwerk @MinPres nog steeds het SCHULD=H00P-principe in de lucht wil houden zorgt ervoor dat 'het hebben van schulden veel aandacht opeist, zorgt vaak voor stress (oorzaak van kanker) en mogelijk ook angst. Dit belemmert het 'creatief bewustzijn' en zorgt ervoor dat schuldenaren minder aantrekkelijk zijn voor werkgevers. Werkgevers krijgen te maken met administratieve lasten wanneer sprake is van beslaglegging op inkomen. Ook is er een verhoogd risico op verzuim en verminderde productiviteit van werknemers met schulden. Dus allemaal redenen om het systeem 'Leven en Laten Leven' in te voeren.
http://www.trouw.nl/tr/nl/4324/Nieuws/article/detail/1674610/2007/09/08/...
Diederik Samson is een beetje meer gelijk dan de rest van zijn fractie, omdat hij voorkennis bezat van de 3e SpinozaGolf. De @MinPres kan wel zeggen dat wanneer je de 3e SpinozaGolf tegen hebt, je harder moet roeien, maar daartoe is een psychosegelovige geweten niet toe in staat. Het 'waarheiddelen in de politiek' maakt duidelijk 'dat veroudering' sneller gaat, wanneer je psychosegelovige idealen probeert te verwerkelijken. Kennis van de 3e SpinozaGolf veroorzaakt een nieuw bewustzijn dat je 'het gelijk-van-de-grote-bek' moet toetsen aan de evoluerende werkelijkheid. Dat staatssecretaris Van Rijn de PGB-kwestie expres uit de hand heeft laten lopen, moet de roep om het DAB-systeem versterken. De VVD doet niet moeilijk in het omruilen van bewindspersonen, maar de PvdA-TOP wil niet bekennen dat "wijsheid van de werking van het systeem 'Liegen om te Leven' niet meer zaligmakend is".
http://www.trouw.nl/tr/nl/4492/Nederland/article/detail/4041750/2015/05/...
Dus kunnen we een bonte stoet aan (belasting) maatregelen verwachten. Samsom had Obama al kunnen vertellen dat
'repressie niet structureel helpt', maar zelfs bewegingen zoals = 1S= extra spirituele brandstof geeft.
Het is mooi dat de Nieuw-Zeelander Nicholas Davidson de ethische commissie van de FIFA heeft verlaten.
http://www.volkskrant.nl/sport/britse-banken-onderzoeken-corrupte-betali...
Nu komt er plaats voor aandeelhouders van @GuusjA.
http://s.vk.nl/dossier-de-speld/proef-met-basisinkomen-voor-65-plussers-...
De Sociaal-Economische Raad heeft al in een rapport staan dat 'het ministerie van Sociale Zaken een revolutionair pilot-project heeft opgestart: 'het basisinkomen voor ...'.
http://nos.nl/artikel/2038731-russen-boos-over-benoeming-lafaard-saakasj...
Ondertussen benoemd KlaverenTeam nog steeds vriendjes op belangrijke posten om zo de 3e SpinozaGolf te frustreren.
"English, motherfucker! Do you speak it?"
I think he is saying that The WHITE ZONE is for loading and unloading only. If you gotta load or unload, go to the WHITE ZONE.
the loading dock is in the back where the public doesn't have to look at it
exit strategy, what the fuck are you
thinking man? wake up.
stop with this strategy crap and
"get to work" mr b..
The writing is so poor I can't understand wtf he's saying. Get a damn editor.
"...and these bonds must be absorbed by the private sector."
Good luck with that.
Not so much the writing as some of the weirdest formatting I've seen.
Who
starts a paragraph like that?
I
don't.
DavidC
Peter Schiff predicted all of this.
the bad writing or the economics?
He knows his stuff. Timing is almost impossible with a the Fed doing what they're doing, and algorithm driven markets, but in the end Schiff will be proven correct.
Hussman did a bit on Fishers plan to sell off, or not renew Fed holdings, his plan is that the Fed can reduce 1/3 of its balance sheet without putting pressure on rates. after the Feds balance sheet is a bit lighter they are not in danger of going insolvent if rates go up too quickly. the cart goes before the horse. more room on the balance sheet could be read two ways, a green light to raise rates, or a green light to do more QE. my thought would be they wouldnt want anyone to know they are reducing their balance sheet because that means there is no QE for the forseeable future. there is ample liquidity which can recirculate with REPO and POMO devices, if the Fed can cut 1/3 without getting close to the bone of contention, there is obviously way too much liquidity. they just dont want people to think they are mopping it up. that implies a smaller monetary base, and puts the MMs in jeopordy, but they already a reverse REPO for that contingency. so yeah. dont take away the punch bowl just add more ice, water down the drinks and party on.
+++++ Well put grateful. Hussman is one of the good guys. He does not waver.
A convoluted scheme that only a certain type of individual/s who always seem to be at the center of money movements, could conjure up. A twisted and tortured $root system built upon obfuscation to protect what they want the general public to know nothing about.
The Fed has painted itself into a corner and all it can now do is talk. The question is why does anybody still listen?
because if you are a trader ... what they say is EVERYTHING in the short term..
that is the folly and disgust of the entire CB situation
because if you are a trader ... what they say is EVERYTHING in the short term..
that is the folly and disgust of the entire CB situation
The FED cornered themselves by believing their own bullshit. Magic models are not reality but they've never been near reality so numbers on paper are more real to them. Too bad you can't eat numbers on paper....
i am certain Yellen will make a statement to that effect, sooner or later, and by then the only people who will act surprised are the MSN
Godamit.. OT.. but who gives a flying F anymoar.. because this has as much to do about value as anything in the alleged "market".
Manspreading
http://www.cbsnews.com/news/mta-addresses-manspreading-on-public-transportation/
..does this have any connection with “wide stance” ?????
http://en.wikipedia.org/wiki/Larry_Craig_scandal
F me with a fire hose.
We are so screwed.