This page has been archived and commenting is disabled.
Hawks, Doves & Chickens
Submitted by Pater Tenebrarum via Acting-Man.com,
Gallus Gallus Domesticus and the Ghost of 1937
Just before writing this comment, we happened to come across a truly funny tweet by the WSJ’s Greg Ip, which you can see below, including our reply:

Jon Hilsenrath seems to seriously believe the markets weren’t “prepared” enough for a ridiculous rate hike of 25 bps at most, from the current level of – zero!
Of course we would like to thank Ms. Yellen and the merry pranksters for helping to set up a better shorting opportunity, but all kidding aside, we actually believe that Hilsenrath is in a way correct. They are dead scared of being seen as setting off a market crash, and they know of course that more than six years of humungous money printing have achieved little besides blowing another bubble. In fact, the real economy, though not yet in recession, looks decidedly lame.
FOMC members are probably wondering why that is so, considering their intellectual background. Their economic theorizing seems to be an odd mixture of Keynesianism and Monetarism, sort of mixing the worst aspects of the two schools of thought. We happen to believe that Joseph Salerno was actually on to something when he referred to this as the “John Law School of Economics”, because that’s what it basically is. In “Money, Sound and Unsound” Salerno writes:
The stable money doctrine was soon discredited, only to be replaced by the vastly more inflationary spending doctrine propounded by John Maynard Keynes, himself a former advocate of stable money. In its essentials, Keynes’s doctrine harked back to John Law and the so-called “monetary cranks” of the nineteenth century. Keynes maintained that depression was simply the result of a deficiency of total spending or “aggregate demand,” which was a chronic condition of the market economy. The only remedy for this problem, he argued, was government budget deficits that directly injected money spending into the economy combined with an expansionary monetary policy to lower interest rates and stimulate private investment spending.
[…]
By the late 1970s, Keynesianism as a policy program had lost its credibility and it was supplanted by monetarism, a movement led by Milton Friedman which had been growing in influence in academic economics since the early 1960s. But monetarism was nothing more than Fisher’s stable money principle supported by a seemingly more sophisticated version of the quantity theory of money restated in Keynesian terminology.
[…]
By the early 1990s, a new theoretical consensus in macroeconomics had emerged known as New Keynesian economics, which synthesized elements of Keynesianism, monetarism, and New Classical economics, an offshoot of monetarism.
(emphasis added)
And that mixture is where things remain to this day. The only “new” aspect as far as we can tell is that the “NAIRU” doctrine has been warmed up again by some of the more dovish members of the FOMC such as Charles Evans (NAIRU is based on the fallacious Phillips curve, which in turn is a prime example for why economic theory simply cannot be deduced from “empirical data”).
It is perhaps worth noting that at least seven Nobel prizes have been won for papers debunking the Phillips curve in some shape or form. We hasten to add that receiving the Sverige Riksbank’s prize (it is not a “real” Nobel prize, it is a central-bank administered prize “in the memory of Nobel”) does not make one a good economist. It is essentially meaningless. Often two or more economists with diametrically opposed ideas are getting the prize at the same time – and often the ideas of both are humbug. We have actually come to view this prize as a contrary indicator, and the fact that Friedrich Hayek won the prize as well should really be regarded as the exception proving the rule (we believe he only won because the events of the 1970s so thoroughly discredited Keynes, at least for a while).
The administered interest rate shall remain at zilch… – via StockCharts, click to enlarge.
Anyway, the one event in economic history that can probably be considered the most influential informing the policy of the modern-day FOMC is the Great Depression – an outlier event that should mainly forever stand as a warning against willy-nilly credit expansion and heavy interventionism both before and during an economic downturn. Unfortunately for all of us, the “scientific doctrine” of our modern-day policymakers is characterized by having taken away all the wrong lessons from this event. The ideas of the so-called “depression expert” Ben Bernanke continue to be a dominant feature of the thinking of the central planners.
There was a “depression within the depression” in 1937, which probably is the main event driving the board’s current views. We have discussed this in some detail previously (see “The FOMC and the Ghost of 1937”), but briefly, it is held that the Fed had tightened policy “too early” in 1937 and that FDR was mistaken in reducing his government’s deficit spending. This is of course complete nonsense. While it is true that these actions helped trigger the downturn, the downturn itself was inevitable in any case. The bust merely unmasked the malinvestments that had piled up due to the heavy monetary pumping and outrageous deficit spending that went on previously. As always in such situations, scarce capital had already been consumed during the preceding boom – and then everybody bemoaned the discovery of this fact.
In other words, postponing the tightening move would merely have made matters even worse – and the same holds for today’s postponement. As Bill Bonner noted in his recent missives on “Janet Yellen’s Brain at 4:00 a.m.” (part 1 and part 2), Ms. Yellen and her colleagues probably fear nothing more than getting blamed for a financial debacle and an economic bust on account of “tightening too early”. And so they have opted to continue to let the unnatural situation fester, in which we are all supposed to pretend that the cost of capital should be rationally set at zero.
In short, they are neither hawks nor doves – they are chickens.

A new kind of bird on the FOMC board….
For the Kremlinologists
Kremlinologists should once again take a look at the WSJ’s FOMC statement tracker, which compares the July to the September statement. As you can see, the committee remains as clueless as ever. This is by the way not a complaint; we are just as clueless as to the future of the economy, apart from a few educated guesses – but then again, we aren’t trying to set the price of credit for the entire economy.
There was one hawkish dissident, namely from Richmond fed president Jeffrey Lacker. This is no surprise; he was definitely most likely to dissent with a continuation of ZIRP. What surprises us the most about Mr. Lacker is why he hasn’t resigned a long time ago, given that he often expresses quite level-headed views. Does he really believe that money and credit should and can be centrally planned?

Lone hawkish dissenter from the ZIRP policy: Jeffrey Lacker.
Photo credit: Andrew Harrer / Bloomberg
The decisive passages in the statement for assorted liquidity junkies were the following:
“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.
[…]
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”
After all the angst that preceded this FOMC meeting, “business as usual” obviously remains in place. However, people have likely become inured to this. It may no longer be enough to keep all bubble activities afloat.
Conclusion
The Fed remains in a box of its own making. We are beginning to doubt whether central bank will ever be hike rates again voluntarily. What is however eventually highly likely to happen is that the markets will force the Fed to act – or as Bill Fleckenstein puts it, “the bond market may take the printing press away from them”.
Lastly, when FOMC members point out that current low “inflation” figures (meaning CPI rates of change) are likely “transitory”, they are not wrong – this is simply a matter of base effects in the calculation of CPI. However, as we have pointed out previously, an eventual rate hike won’t necessarily put a brake on further increases in the money supply, due to the central bank’s current modus operandi.
As things stand at present though, money supply expansion depends primarily on the commercial banks – and they may prove unwilling to increase the stock of fiduciary media much further in view of how weak the economy appears to be. As we have often stressed, if the economy’s pool of real funding is sufficiently exhausted, there may be literally “nothing left to lend”.
- 15260 reads
- Printer-friendly version
- Send to friend
- advertisements -



A better title would be: "Hawks, Doves & Chickenshit"
I wonder if this New Classical economics has anything to do with the Common Core bullshite they'e now pushing in the public schools.
You're JUST NOW beginning to wonder?
Better late than never I suppose.
"We are beginning to doubt whether central bank will ever be hike rates again voluntarily. "
NO. They won't. LDO!
This is all a slow motion parade of the blind leading the retarded.
I was thinking more like leading the sheep to slaughter...
If the economy is doing so well then why did 2.3 million people apply for 368 jobs washing tea cups and grabbing coffee.
LUCKNOW, India - When a northern Indian state announced a few hundred job openings for low-level office workers who run errands and make tea, the response was staggering.
About 2.3 million people applied for the 368 jobs with the government of Uttar Pradesh. Hundreds of candidates with doctorates and other advanced degrees applied for the jobs that pay about 16,000 rupees ($240) a month and require a fifth-grade education.
The massive number seeking the menial jobs reflects high unemployment levels in the state - India's most populous - and across much of the country.
Senior administrative officer Prabhat Mittal said Friday that the state government will conduct a written exam to screen the applicants because interviewing all of them would take four years.
I detect a whiff of revolt in the air
Only a whiff so far, but the direction of the wind is changing and we'll have a stench pretty soon......
end the fed with extreme prejudice
230 grains of extreme prejudice to the point between the eyes....
A Hawk and a Dove are locked in a box with the Federal Reserve System ...
Which one is still living ?
and who will open the box to find out ?
I am standing over said box, holding a huge hammer ...
fed will not hike rate till us$ index drops to 80ish.
That might be important but it is not the whole story. They are fighting huge deflation now, value is being sucked out of the money world by a gigantic black hole in the financial system. The hole was created by the end of exponential growth in the West, which rode in on a horse named "Ponzi".
The Fed and CBs are not in a box so much as they are in a sinking ship.
There is no way out.
They are toast.
Can't raise the rates until the big boys get out of stawks. They can't get out cause there isn't anyone to sell to.
The companies in question will implode taking their stawks with them. And thus, you are out.
Horseshit. The FED has committed criminal fraud via MBS purchases. They have no exit strategy at all to unwind those toxic assets either.
In their own words...from the FED meetings 2009.
https://www.youtube.com/watch?t=1189&v=jt377DV2BKs
That one group seemingly wields control over trillions of dollars and millions of peoples' live is truly wrong.
Uglier by the day.
Forget the hawks, I think these doves are getting a bit too large, maybe we need Peregrine Falcons to balance them off........talk about a rock and a hard place.
Is that what you call your nips on those bodelicious huge bazongas?
It is obscene that the US FED is basing policy on what is good for FOREIGN economies (china, EU), ...after nearly 10 years of robbing/raping/pillaging senior citizens of a meager few percent to line on what little they may have saved frm the taxman. is it just me, or am i in some alternative universe?
NO, see my comment below, the Fed is a global cartel.
Why would they care about those old geysers.
Aren't they supposedly in the demographics that have stopped spending on major purchases such as homes, appliances and such?
Geysers - Yellowstone is full of 'em spouting off.
Geezers - Florida is full of 'em dying off.
Pure Evil - just full of 'it.
"We are beginning to doubt whether central bank will ever be hike rates again voluntarily. What is however eventually highly likely to happen is that the markets will force the Fed to act – or as Bill Fleckenstein puts it, “the bond market may take the printing press away from them”.
Yeah right, let me know when the bond market takes away the printing presses from Japan. 20+ years and counting.
In fairness, Japan had everyone else's consumption to sustain their fraud. Going forward that game is over, and events are finally catching up with Japan.
Japan's 10 year yields .3% right now. I don't see the bond market calling them out as of yet.
The Fed is desperate, and desperate with the world's economy under it's foot. It's a damned if they do, damned if they don't policy. The appear to have chosen the damned if they don't policy, which is leaving ZIRP 4 EVAR or even implementing NIRP.
Yet eventually the system will rot into a worthless dollar or a bond collapse. Stocks are fucked either way.
History seldom makes note of what someone did not do. These guys are academics, history means a lot to them, and their place in history means more than anything.
They will not do. By doing nothing they escape the vilification that comes with ultimate attribution, and by kicking the can until the can is nothing but a dust mote means their friends can skim a bit more fictive wealth on the way to annihilation. These are all perverse goals, but then these are perverse people.
Not desperate. Did you watch Yellen's announcement? Did you notice the look of smug confidence, the casual indifference that she couldn't conceal with her look of feigned sincerity, that she emanated while reading the announcement, and especially while dodg... err... answering questions?
There's no desperation here. Just a calm confidence that the Fed and its owners are in control, that the sheep will never rise up against the butchers, and even if they do, there's an entire militarized police force at their beck and call to squelch an outbreak before it becomes a problem.
No desperation at all. It's almost like tic-tac-toe. So simple it's hardly even fun anymore.
They are not "clueless". Not by a long shot. The Fed is a criminal cartel. They can buy as much of anything as they want for FREE, why would anyone think that they would willingly give up that power?
Nothing changes until the heads of all the Fed governors are on fucking pikes!
@LoP,
That video above is outstanding. I watched it last night. Interesting the one guy who really questioned Bernanke was Lacker, the lone dissenter from yesterday. Some of the quotes from these assholes at the FED from 2009 are just fucking outrageous. It is worth watching.
Why anyone thinks the global banking cartel has good intentions is beyond me.
Hawks, Doves & Chickens... and Vultures.
For the life of me, I cannot fathom how anyone can take the blatant bull$hit excreted by these people seriously. At some point, we have to realize that what they do -- and the consequences flowing from what they do -- says everything. What they say means nothing.
Here's the bottom line:
What they say: Blah blah blah blah
What they do: QE, Easy money. First in line gets the money.
The Results:
* The first in line gets to spend thin-air money as if it's real money. They get value for nothing. For everyone else down the line, it's a wash -- they trade value for value. The net effect is just a wealth-transfer scheme from everyone else to those first in line.
* This wealth transfer results in starvation of those down the line for financial resources, resulting in the subjugation of the real economy and the destruction of consumers.
* Since the consumer base has been sidelined, those receiving thin-air money do not invest it in productive enterprise. Why would they? So the money goes into speculation and rent-seeking activities instead. Stock market and real estate prices soar. "Financial products" proliferate.
* Returns on bonds and savings are crushed. Because these investments return no significant yield, retirees are forced to consume principal in order to secure an income stream. Thus the remaining wealth of retirees is drained and their income stream eventually dries up. Only the children of the rich will inherit.
* The federal government is forced to run large deficits as its revenue base dries up while it tries to stimulate a moribund economy. The Fed and its financial owners enable these large deficits by reducing the cost of financing government operations to near zero. This is akin to "the first dose is free" policy of drug dealers. The result is a federal government addicted to deficits and mired in debt, rendering it beholden to the Fed and its controllers.
* The Fed understands the above paradigm better than anyone, yet persists anyway. Why?
Since I don't know any members of the FOMC personally, I can only infer their motives from the results of their policies, and particularly their ongoing pursuit of those policies despite their disastrous effects. IMO, the inescapable conclusion is that the results outlined above are the intended outcomes of the Fed's policies.
It is commonly heard nowadays that the Fed is clueless. IMO, this is a dangerous belief. I contend that the Fed knows exactly what it is doing, which is the deliberate and systematic subjugation of the people and their government. Think of it as the enforcement arm of a determined group of wealthy and powerful interests.
Feudalism is right around the corner. And the Fed is the tool being used to achieve this result.
Their balance sheet of toxic MBS purchases is ZERO, as in worthless. They knew this back in 2009 when they were loading up on them to bailout the insolvent banks. Therefore, they committed fraud on a massive scale unseen before in human history (a couple trillion dollars worth).
The FED and its govenors are the minions and water carriers for the big Wall St banks. Its that simple. The FED itself is now insolvent.
You should think of The Fed as the world's "bad bank", a dumping ground intended to take losses and eventually be dissolved.
Hard to imagine, I know. Makes me think there is already a shadow "Fed" waiting to step in when the bad bank "Fed" winds up.
That's not even conspiracy tripe, it's just good planning.
Other than myself, you're the ONLY person who has put this theory out there.
I believe that I'd mentioned it (at least) a couple of years ago. The Fed is the black hole that'll swallow up the debt and then implode. US govt can state that the Fed is NOT actually a US govt agency and it'll balk at any attempts to settle losses on the part of the Fed. The banskters will swallow this poison only because it'll save them from hangings: TPTB, will, however, provide them the antidote to the poison- they'll be given positions of power again.
Anyway, yup, I'm in total agreement with you!
There's no such thing as insolvent when you can print money. The only time the Fed's balance sheet will become a problem is when their owners conclude that the it's no longer needed and can be dispensed with.
Qinfinity
Neither hawks, nor doves, nor chickens...just jerks...
Navin R. Johnson:
...and that's it and that's the only thing I need, is this. I don't need this or this. Just this ashtray. And this paddle game, the ashtray and the paddle game and that's all I need. And this remote control. The ashtray, the paddle game, and the remote control, and that's all I need. And these matches. The ashtray, and these matches, and the remote control and the paddle ball. And this lamp. The ashtray, this paddle game and the remote control and the lamp and that's all I need. And that's all I need too. I don't need one other thing, not one - I need this. The paddle game, and the chair, and the remote control, and the matches, for sure. And this. And that's all I need. The ashtray, the remote control, the paddle game, this magazine and the chair...
According to Macquarie Research:
https://app.box.com/s/hx16540dwpct4uj5h5iohxsa4197zozd
Time for a policy U-turn?
Back to the future: British Leyland
From conventional QEs to more unorthodox policies…
- As discussed (here and here), we do not believe that investors are likely to benefit from acceleration in growth rates, trade or liquidity and indeed on the contrary, negative feedback loops from EMs to DMs imply that neither would be able to support global growth. Secular stagnation is the key explanatory variable (here). The deflationary pressures from overleveraging, overcapacity and technology shifts can be either allowed to work through economies or the public sector needs to continue resisting via expansionary policies.
- Since ’08, monetary policies were doing most of the lifting with limited participation by fiscal authorities (bar China). In other words, in the absence of either private or public sectors driving higher velocity of money, it was Central Banks that were supplying incremental liquidity to preclude contraction of nominal GDP and avoid stronger deflationary pressures. However, marginal utility of incremental injections has been declining (witness much lower impact of recent ECB’s QE and increase in BoJ accommodation since Dec ’14).
- Part of the reason for monetary stimulus fading is that supply of US$ remains low. Global economy continues to reside on a de-facto US$ standard and current incremental supply is almost non-existent (depending on definition growing at +2%/-1% clip vs. average since ‘01 of ~15%). In other words, due to lack of recovery in the US velocity of money and lack of QEs, global economy is not getting enough US$ to continue leveraging.
…as efficacy of conventional monetary QE is questioned
- At the same time efficacy of continuing with conventional QE policies is being challenged and not just by independent observes but also ‘insiders’ (such as recent SF Fed paper). As velocity of money globally continues to fall, conventional QEs have to become exponentially larger, as marginal benefit declines. If the public sector is not prepared to step aside, what other measures can be introduced to support nominal GDP and avoid deflation?
- There are several policies that could be and probably would be considered over the next 12-18 months. If the private sector lacks confidence and visibility to raise velocity of money, then (arguably) the public sector could. In other words, instead of acting via bond markets and banking sector, why shouldn’t public sector bypass markets altogether and inject stimulus directly into the ‘blood stream’? Whilst it might or might not be called QE, it would have a much stronger impact and unlike the last seven years, the recovery could actually mimic a conventional business cycle and investors would soon start discussing multiplier effects and positioning in areas of greatest investment.
British Leyland failed, but it might work at least for a while
- British Leyland (formed from nationalized British car companies in the late ’60s) destroyed its automotive industry but for a time it provided employment and investment. Central Banks directly monetizing Government spending and funding projects would do the same. Whilst ultimately it would lead to stagflation (UK, 70s) or deflation (China, today), it could provide strong initial boost to generate impression of recovery and sustainable business cycle. It could also significantly shift global terms of trade (to the benefit of commodity producers) and cause a period of underperformance by our ‘Quality & Stability’ portfolio and improve performance of ‘Anti-Quality’ screen. What is probability of the above policy shift? Low over next six months; very high over the longer term.
if they can knock the dollar down earnings look better then rates rise. they still have 2 more weeks to make a dent in the dollar to make this quarter look good.
You forgot pigs with lipstick.
The Federal Reserve has turned into a clown posse prank.
"The Fed is in a box of its own making." no
"We are in a box of the Fed's making." yes
por nada.
'We are beginning to doubt central bank ever be raise rates again'....dang that's some high falutin English words right there! Must be one a them Harverd boys.
I remember, many, many, years ago, as a bright-eyed, bushy-tailed 18 year old college freshman, taking my first econ class; Econ 101-Micro economic principles. Supply/demand, elasticity of demand, scarcity. I remember thinking; wow, this stuff makes sense. Breezed through the class; easy A (back when A's still meant something).
Next semester I had to take Macro Economic Principles. Fed policy, velocity of money, M1, M2, M3, monetary policy and its effect on the economy, employment, etc., and I remember thinking; what a crock-of-shit. An opinion which I promptly shared with the 'professor'. He looked down his nose at me and informed me of my ignorance and how his class would enlighten me, as though these principles had been given to him by God himself. It was then than I realized just how full of themselves, and crap, these academicians really are.
It was the best D I ever got.
Meanwhile they're probably making more money and are in higher positions of power. Go figure!
It's more than easy to debunk it all. The entire System is based/predicated on perpetual growth (on a finite planet). Don't even need to bring up the distraction of "supply and demand!"
So, it's all based on The Big Lie. The System, therefore, caters to the liars. Surprised?