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Bubble Machine Timeline: Visual Evidence Of The Fed's "Third Mandate"

Tyler Durden's picture




 

If there’s one lesson the world’s central planners should have learned by now, it’s that using monetary policy to micromanage economic outcomes leads directly to crises. 

Make no mistake, that’s not some theory that can be written off as a one-line rant by an angry sound money advocate. It’s a demonstrable fact, and the truly scary thing about it is that not only do central bankers steadfastly refuse to understand it, they ardently believe the exact opposite to be true. 

Indeed, the headlong plunge into unconventional monetary policy in the wake of the financial crisis quite clearly indicated that Ben Bernanke either did not understand, or more likely, understood fully and just didn’t care, that the Greenspan Fed played an outsized role in creating the conditions that led directly to the housing bubble.

The problem with rushing to combat any sign of economic or financial market turmoil by resorting immediately to counter-cyclical policies is that the creative destruction that would normally serve to purge speculative excess isn’t allowed to operate and so, misallocated capital is allowed to linger from crisis to crisis, making the next boom and subsequent bust even larger than the last. 

This is one of the most important dynamics to understand when seeking to explain why the past two decades have seen the world careen from one crisis right into another and then into another with each one more terrifying than the last. For those who need proof of the above, we present the following chart from RBS which shows that even if one wants to argue that Keynesian tinkering can manage to slightly smooth out the business cycle (and trust us, the jury is still out on that), what it most certainly cannot do is smooth out financial cycles (defined by the IMF as "self-reinforcing interactions between perceptions of value and risk, attitudes towards risk and financing constraints, which translate into booms followed by busts"). In fact, what the following demonstrates is that central bankers are actually engineering huge booms and busts and getting better at it all the time:

We suppose the only saving grace here is that with rates glued to the effective lower bound across developed markets and with central bankers literally running out of monetizable assets, the Keyneisan endgame looks to be just around the corner and when it comes, it will be accompanied by a dramatic readjustment and, we can only hope, the return of some semblance of sanity.

 

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Thu, 09/24/2015 - 15:07 | 6589706 firstdivision
firstdivision's picture

Green by EOD.  I love free markets.

Thu, 09/24/2015 - 15:11 | 6589730 KnuckleDragger-X
KnuckleDragger-X's picture

It'll work till it doesn't.....

Thu, 09/24/2015 - 15:16 | 6589750 Klemens
Thu, 09/24/2015 - 15:24 | 6589762 cowdiddly
cowdiddly's picture

Thank you. The giant, string pushing increasing amplitude Sine wave I trying to articulate in a post the other day about all the Fed accomplishes.

The next bust will be YUUUUUUUUUGE (I dont think we have the financial bazooka to mitigate the one for the ages)

Thu, 09/24/2015 - 15:20 | 6589769 Tall Tom
Tall Tom's picture

 

 

Damn that is one degenerate graph. Bring on moar doom porn.

Thu, 09/24/2015 - 15:26 | 6589789 Glass Seagull
Glass Seagull's picture

 

 

I don't think they're engineering them to have increasing amplitude and frequency, I think that these unweildy features are unintended consequences of reactionary policy and/or imperfect forecasting.

 

You never played the "inventory game?"  'Splains it all.

Thu, 09/24/2015 - 16:38 | 6590083 TheSecondLaw
TheSecondLaw's picture

Agreed.  And yes, once you've played the inventory game, it all makes sense.

Thu, 09/24/2015 - 15:26 | 6589790 gcjohns1971
gcjohns1971's picture

The main issue isn't that they don't care that they are the source of the problem, but rather that the recipients of their largesse matter, and those it is taken from are powerless and do not matter.

 

It is pure dystopian social dynamics at work.

Thu, 09/24/2015 - 15:29 | 6589798 . . . _ _ _ . . .
. . . _ _ _ . . .'s picture

Wow, talk about a nice fit!

The following image describes a speed wobble when going too fast on a bicycle.

https://lh6.googleusercontent.com/tQ3filTwGBaXBc7xzLKnGDmCqJ4wAEyT63F9ZQ...

Thu, 09/24/2015 - 15:33 | 6589811 . . . _ _ _ . . .
. . . _ _ _ . . .'s picture

Does anyone know the code for pasting images directly into the forum?

Thu, 09/24/2015 - 16:04 | 6589928 Bill Brasky
Bill Brasky's picture

I think only a select few are given that power. Perhaps it is for the best too; I have a feeling it would start looking like 4chan very quickly.

Thu, 09/24/2015 - 16:22 | 6589996 . . . _ _ _ . . .
. . . _ _ _ . . .'s picture

Aah yes, I see. Thanks.

Thu, 09/24/2015 - 16:33 | 6590034 Scooby Dooby Doo
Scooby Dooby Doo's picture

Submit an article as a contributor and then you'll have it.

I tried to do it but I got put into timeout. My article was this:

"Hey whats up. I'm writing this article just so I can get pic posting credentials so go ahead and leave some stoopid comments I don't really care."

Then I got into trouble, so don't do that.

Thu, 09/24/2015 - 15:31 | 6589806 alphamail
alphamail's picture

What will Hilsenrath, the Yellen Whisperer say about all this?

Thu, 09/24/2015 - 15:37 | 6589831 wcvarones
wcvarones's picture

Janet's a Third Input kinda girl.

Thu, 09/24/2015 - 16:21 | 6589988 RandomWisdom
RandomWisdom's picture

So based upon this wonderful analysis we are in for some good times before things go to hell again.  Not!

Thu, 09/24/2015 - 16:40 | 6590097 CHX
CHX's picture

"central bankers steadfastly refuse to understand it, they ardently believe the exact opposite to be true"

 

They know EXACTLY what they do, they just cannot admit this openly. Qui bono ? Their tentacles, the TBTFs who get in early in the bubble blowing process (*start it*) and get out at the top (*they determine the top when retail is all in*). And short the bubble, profiting up and down, screwing everybody else. What's so hard to understand here? All the ones that need to benefit benefit. TATAA - mission successfully accomplished, one after another. Bubblomics 101. Wash, rinse, repeat, till it's all FUBAR (*check*) and utterly collapsing (*work in progress*). 

Thu, 09/24/2015 - 16:47 | 6590146 venturen
venturen's picture

business cycle? When in American history has the US government printed money for an oligopoly of bankers? There is no market...just cronyism

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