Obama, Bernanke and Yellen Rigged the Bond Market. Now it’s Trump's Turn to Dance or be their Dunce-Michael Carino Greenwich En.

Greenwich Endeavors's picture

Government dysfunction is at its worst.  We voted them in.  We have no one to blame but ourselves. Granted, the choices were abysmal. But the Republican and Democratic parties, with no third party competition, can continue to run dysfunctional governments, whittling away our dominant global position until the cracks of our broken government becomes abundantly clear.  As a society, we play right into their subterfuge of keeping us so upset at the other party, we don’t see right in front of our own eyes the decay of policies created to reflect the success and desires of just one party.  Polarized politics that take the best and worst policies of one party instead of the best of both parties is destined to end in a deep, painful recession and possibly a global depression.  Pathetically, America is chained to a wall in Plato’s cave with half watching MSNBC and the other half Fox News since birth.  I fear changing the channel would be like Zhuangzi’s seventh hole in Wonton instead of enlightenment.  We are stuck with the landscape in front of us for now.

Since the dawn of politics, politicians have tried to balance keeping themselves in office and destroying the competing politicians while keeping the economy healthy and vibrant to ensure reelections.  Similar to strangling the golden goose to get every last golden egg without killing the goose, politicians play the same game with the economy.  Passing poor economic policies to reward constituents without derailing forward progress in an economy is a hard task and often leads to disastrous results.  In the US, when politicians pursue poor economic policies down party lines, the results from poor performance is swift and new politicians are elected.

The financial crisis of 2008 proved that poor economic performance leads to significant political change. It also proved that when pressed with a disaster, politicians can come together – though at the last possible moment – and craft policies to remedy the situation.  But that harmonious bipartisan relationship only lasted for moments.  Once the systemic downward spiral stabilized, their cooperation ended.  The task to get the economy away from the brink of a stabilized disaster and grow again fell in the lap of the Central Bank and Fed President Ben Bernanke.

Central banks are supposed to be void of political influence.  However, Alan Greenspan, Bernanke’s predecessor, had just retired and most would argue let the economy run too hot for too long with an extremely easy monetary policy.  Was Greenspan less of a monetary hawk, ignoring growing excesses to avoid shallow downturns that are part of a normal business cycle because he was about to retire?  A younger Greenspan surely wouldn’t have been so timid on the monetary policy front.  Did he care about his legacy and didn’t want to see a downturn until he left office?  Or was it less ego driven and more political influence?

Central banks are typically independent, and therefore, not viewed as a governmental puppet funding doomed policies regardless of merit.  If not independent, attracting foreign capital becomes difficult since the track record shows a cohabiting relationship fails in the long run.  But political influence can be hard to avoid, especially when hounded by politicians daily, not to mention handpicked by the political party in power.  Greenspan was blamed for having too restrictive of a policy on George Bush Sr.’s watch and used as a scapegoat when not reelected.  When George Bush Jr. was running for reelection, it seemed this point registered and Greenspan remained accommodative keeping rates too low for too long.

Following right along with this influential creep over the Central Bank, a visit by the Fed to the White House used to be rare and is now commonplace with a direct line of communication.  As Bernanke took office, it was obvious that the divisive political landscape could not produce solid economic policies and the Fed would be left to do the heavy lifting.  In order for Obama to fund his partisan economic policies, while attacking his political opponents (finance, healthcare and traditional energy sectors), he needed the Fed’s help.  Bernanke accommodated, bringing rates to zero anddeprive savers.  He encourage borrowing and reckless leverage and pulled future growth forward to offset Obamas policies. Sure, Bernanke could have maintained a rational higher rate monetary policy.  We would have suffered a shallow economic recession and politicians would have been forced to work together on good economic policy for all to escape another downward spiral.  But Bernanke was not a self-thinking maverick.  No, he was an academic that loved to be loved and took the easy way out.  This ensured the status quo would continue on his watch leaving destructive problems bubbling under the surface.  Next came Fed Chairman Yellen. After years under Bernanke as the Vice Chairman of the Fed, she knew the cost of low interest rates and trying to accomplish more than rational monetary policy can produce.  She decided not to have these issues unwind on her watch and continued funding poor economic policies to ensure continuation of what is now the longest expansion, albeit a slow expansion, in the US.

It’s easy to show Yellen knows the costs to a prolonged low interest rate policy.  When Yellen was the President of the San Francisco Federal Reserve, they created a web based game “Chair the Federal Reserve”.  In it, you as the Chair of the Fed can set monetary policy. In all instances, setting low interest rates for a prolonged period leads to high inflation. (Give it a go at http://www.frbsf.org/education/teacher-resources/chair-federal-reserve-e...).

The problem with funding poor economic policies with low interest rates – or outright monetization of almost 5 trillion dollars of debt - is eventually you run out of reasons to keep rates artificially low.  The Feds purchases amount to approximately the total debt we had in 2003.  Without the Fed’s purchases, the US would not have been able triple its debt since then!  We now have decades of poor partisan economic policy and a pile of debt that we will not be able to fund if interest rates ever reverted to the historic mean.

There are many obvious reasons higher interest rates will be destructive.  Public and private balance sheets are bloated and cannot service higher levels of rates.  Certain multi-billion dollar hedge funds which attracted capital holding hundreds of billions in fixed-income investments, leveraged and riding the bond rally down to historic low yields – with a nod and a wink from the Fed’s crony capitalism - have the potential to create systemic dislocations when investors’ redemptions due to poor performance force an unwind of these positions.  Some of these largest hedge funds are already seeing evacuations taking place from the stewards of these funds’ helms.  And when the international community, which holds half the US debt, realizes the next crisis will result in more debt issued and monetized by the central bank, not only will they avoid our debt market, they will run for the hills.  This will result in a parabolic move higher in yields, the dollar weakening and inflation limiting the response by the Fed. Sound like the 1980’s all over again. It should.  History, after all, rhymes, if it doesn’t repeat.

Now it’s Trump’s turn.  His grandiose plans of make America great again with expansionary economic policies that are badly needed are a catch-22.  The Fed has managed and manipulated interest rates significantly below market levels for so long, the cost of this expansive policy will prove to be catastrophic if rates adjust higher.  The US can only bluff investors to keep investing in these below market rates if they believe the next crisis is on the horizon or they believe growth will continue to be slow keeping inflation running around this 2% level.  Trump faces two scenarios: continue down the path of slow and steady growth assisted by Fed manipulated interest rates or pursue faster growth and suffer a recession or worse from markets setting higher rates.  Will he dance and play the game that is set before him, or pursue his agenda and end up being the dunce?

Yes, if Trump pursues a pro-growth agenda, sadly, it will end with higher rates and an economic crisis.  Ironically, this sounds like a tried and tested process to bring our politicians together and work in a bipartisan way.  Too bad it takes a crisis to make government functional.  I hope our luck of working together at the last moment only in times of crisis has not run out.

by Michael Carino, Greenwich Endeavors

Investment veteran and published author, Michael Carino, prophetically called the timing and amplitude of the recent move in global bond markets publishing “Global Bond Markets – Skydiving Without a Parachute.”  Michael has spent the last 25 years managing fixed-income hedge funds and trading of over a trillion dollars of investments.  He is the CEO of Greenwich Endeavors, a financial service firm.  He feels compelled to get his unique and under-reported views on the markets out to the public.  He hopes to assist your readers’ creation of wealth and limit your readers’ destruction of wealth.  It's time a voice contrarian to other self-interested, behemoth Investment Managers’ voices are heard.

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curbyourrisk's picture

The FED has found their patsy, and it is President Trump.  They will seek to undue all the CRAP they did to preserve Obama...  and now blame any sell off on President Trump.



blindfaith's picture



These bankers are viruses just like AIDS and Cancer.  They will eat their host to the point of death and not think twice about it.  WE stuipd public keep feeding them drugs hoping to keep them at bay.


The Fed is for the elite and uber rich, why not look who own them...The US tax payer does not.

orangegeek's picture

As much as yellen lies about the Fed being a private corp, the Fed is one of the political arms of the US goobermint.


The markets tank when yellen leaves office - Feb 2018.


And Trump already knew this before running.


Get ready for some fireworks.

JailBanksters's picture

All you need to know about Treasury Bonds is it's a Ponzi Scheme.

To pay off a Bond when it's due, just sell another Bond.

When nobody buys the US Treasury Bonds, then the FED buys back their own Fake Money with more fake money.

Kat Daddy's picture

When the big banks freeze up, Nationalize them all, Take over the Fed.  The Treasury can issue funds to cover obligations.  Renounce the debt owned by the Fed, don't let them jerk us around.

Reaper's picture

Money printing corrupts absolutely.   Politicians can be voted out.  Bankers not.  Congress can eliminate the Fed, seize the $4 trillion in bank assets, aka the proceeds of Fed's money printing. Then, print the money instead of borrowing, rather than pay bankers to print that same money.  Eliminate the middleman's skimming. 

A. Boaty's picture

"...poor economic performance leads to significant political change...."

Still waiting for that.

opport.knocks's picture

I don't know of anyone who voted for the banking cabal that runs the country. Nor the CIA or NSA heads, nor K-Street bagmen and any of the other behind the scenes lever pullers,

I do know they view their own roles as being too important to be influenced by "dumbocracy". 

RedBaron616's picture

"We have no one to blame but ourselves."

Nonsense. The Deep State runs the country. The average citizen cannot do a thing to change that, either. Not to mention that we have jobs and need a paycheck to survive and so don't have the time or money to go protest nonstop, unlike snowflakes who live in Mommy's basement. 

chubbar's picture

The author nevers gets down to the actual problem, a debt based monetary system. The one trick pony of dramatically raising interest rates in 81 by Volcher was only possible because the US debt was still in it's infancy. The bond bubble is a result of having to continually run deficits due to the Triffin dilemna and being the world's reserve currency. The bigger the bubble the bigger the resulting bust and it's impact on the world. Interest rates have to trend down, with small adjustments by the fed up and down to attempt to fine tune inflation, essentially forever in order to accommodate the bond bubble. Now having trended all the way down to the zero point, while the Fed can make minor adjustments up, it can't do so for very long without blowing up the bond bubble and world economy. So, it eventually has to go into NIRP and continue printing to control the economic decline. While they have sustained the bond bubble, printing money has to date resulted in asset inflation, which is misdefined as GDP growth, and those funds are accruing to the wealthiest.

So now they have to make policy changes like handing people basic income in order to try to spread the money printing around and control massive unrest. However, this will just speed up price inflation as they spend this money, which is now taking hold. There is no way to walk back this debt based monetary system without blowing up the bond bubble and wiping out assets backed by the bonds. So much malinvestment has occurred due to this system that one would be hard pressed to find a significant sector of the national economy that would exist were it not for this system.

Right now the elites are coming up with new ways to trick fuck the system so the folks owning bonds only take small losses or none at all, while printing the interest and bailing out any major entity whose failure might take down the system. ZIRP, NIRP, One World Currency, No paper currency are all part of this attempt to trick fuck the system so it doesn't implode. BUT, it all comes down to this debt based monetary system when you dig deep enough.

Dwain Dibley's picture

To be accurate, it's a debt based 'private credit system' tenuously backed by public 'legal tender money'.

There is only $1.5-Trillion in U.S. legal tender money in circulation around the globe, with about $280-Billion of that in circulation within the U.S.  $71-Billion of that is held in bank vaults as 'reserves'.

That $71-Billion in U.S. legal tender currency held in bank vaults backs the $1.9-Trillion in credited demand deposit accounts.  It also backs the $9.3-Trillion in credited savings accounts.  It also backs all commercial credit transactions, from Main Street to Wall Street and all points between and beyond, that occur daily.  It also backs all government payments.  And that, is the reality of 'fractional reserve banking'.

Note: All commercial transactions that utilize the banking system as intermediary, are credit transactions conducted in the bank's asset-backed, debt-based private credit and not U.S. legal tender, which is designated in 31 U.S. Code § 5103 as being United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.

Also Note: The U.S. Government has no legal obligation to make good by 'monetizing' Fed and Bankster generated asset-backed, debt-based Private Credit.


DownWithYogaPants's picture

This article was poorly written.  Some how I do not get the feeling he prophesized anything.