Another Ex-Fed Governor Admits "Only So Much Fed Can Do"

Tyler Durden's picture

It seems the ability to admit defeat a lack of omnipotence comes with retirement from the Fed. The volume of truthiness from ex-Fed governors is growing and Mark Olson just provided a very succinct summary of why he believes not only is the most recent jobs number not a surprise to the Fed, but the market has already priced in what the Fed could do. Olson sees the odds of QE3 as 50-50 at best, believes changes in the employment picture are rounding errors and not driving Fed decisions on a tick by tick basis, and most critically he notes that "the Fed doesn't want to get into a position of is having to react because of the market anticipation." No matter how much political pressure, the need to keep that QE powder dry for when the stuff really hits the fan seems more prescient and Olson provides color on the limits of Central Bankers as he notes the effect of Fed actions as "the only possible impact it would have would be psychological," and that "they've provided all the stimulus you can do with monetary policy in the absence of anything happening with a better fiscal policy."

Olson begins at 3:20...


It seems increasingly clear that the Fed is cornered and will have to disappoint the market in order to maintain any sense of omnipotence going forward - especially given Olson's view on the jobs data and the limits of monetary policy.


Full Transcript:

Mark Olson is a former fed governor. welcome to halftime. pleased to be here.

Is the Fed going to do something this week?

I would put it at no better than 50/50 for a couple of reasons; number one, to do anything on a qe-3 would take something like half a trillion dollars worth of investment; also i don't think that the employment number or the unemployment number surprised the Fed at all - that's consistent with what's happening in the economy generally.

What the Fed doesn't want to get into a position of is having to react because of the market anticipation.

On the apparently dismal jobs data as a driver for QE:

As I said, I don't think that number would have been a surprise. Also you have to remember that somewhere between 3.5 and 4 million people leave a job and start a job every month - the difference between the 95 and 130,000 is essentially a rounding error - nothing in that number surprised the Fed.

If the Fed does act, what does the stock market do?

That's your call. i think that's -- the problem is that the market may already have priced in what the fed might do, and that's some place that the Fed does not like to be. They don't like to have to respond because the market moved. The Fed doesn't look at the market move, they look at the underlying economy - a very fundamental difference.

What do you think would be the most effective thing the fed could do. now, you mentioned -- just for the backdrop you mentioned given such a huge, huge qe-3 is probably out of the question. would it be something like not paying banks anything for holding their excess deposits, foring them to lend to get some return on capital or where would they go?

I think that's one of the three options that would make some sense; but i think what else might happen is just a reassurance that in spite of all of the incentives they've put into the marketplace, all of the assistance that they've put into the market, inflationary pressures are still muted. To me that would be the most important thing that they can say and that they would continue to look at other options that they may have to invoke in the future.

You think Fed action would be effective at this point, sir?

Not in terms of its impact on the economy. The only possible impact it would have would be psychological. I don't discount that as having value.

Why would they need to do anything, then, if that's the case?

They really don't, I don't think. I don't think in terms of the underlying impact on the economy, you're now pushing on a string. They've provided all the stimulus you can do with monetary policy in the absence of anything happening with a better fiscal policy.

Mr. Olson, does it not become a problem unwinding this? i heard your number of 500 billion. you threw out a number a couple of months ago of maybe a trillion. doesn't the problem now become it used to be a win/win for the fed. Isn't it now a problem of unwinding if they do do something

There's additional risk to do that. There's no question that will provide additional risk. i think that's one of the other reasons why i think it might not happen. the other thing you have to keep in mind, chairman bernanke will not want a split vote on this next issue. he'll come out of the meetings this week with a consensus one way or the other. i doubt very much he gets a consensus on an aggressive qe-3.

Bernanke thinks he has more fire power. He's clearly made that argument on multiple occasions. are you doubting whether that's true or not?

It's more fire power, but remember he always caveats it with saying that there's only so much you can do with monetary policy. The caveat always is that it only goes so far in the absence of a clear fiscal policy which we're not getting.

Can the fed help the job market?

The fed can help the job market, i think, significantly by the manner in which it just sort of maintains the underlying economy and keeps its eye on inflationary pressure. ... the job number cannot be a function solely of monetary policy.


There's only so much monetary policy can provide. What monetary policy can provide, it has largely done; and the economy is still very soft. What they can possibly do is to do a further rearrangement, perhaps, of the existing portfolio to push longer-term rates out even lower, although they are pretty low right now. But there's only so much you can expect from monetary policy.

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Al Huxley's picture

'We've been sodomizing the American people for going on 100 years now, there's a limit to what we're capable of, you know...'  - but maybe I'm misinterpreting what he's saying, I don't know.

Abraxas's picture

No, I believe you read it right. Next year it's the centennial anniversary. Perhaps they are preparing a big surprise party for us.

Precious's picture

Bernanke stars as Poppa Smurf with special guest Anna Nicole Smith.

Clashfan's picture

Keep bending over. Don't say anything, or we will deny lube.

Check out the next (maybe?) MO governor. He worked for a bank. His bank got a 40 million dollar bailout. Instead of paying it back, the top administrators of the bank all got huge loans.

Cognitive Dissonance's picture

Death bed confessions wait until there is nothing left to lose.

spekulatn's picture




fonzannoon's picture

This site has been bangin the QE drum all year. In the spring there was article after article that the Banks were throwing tantrums to get the fed to act. Nothing happened. Then the buildup on here started again before Jackson hole. Now, right as everyone and their mother seems to think it is guaranteed this week, ZH not only is banging the drum that it won't happen, but more importantly it has been illustrating that the fed actually can't do it.

If the argument is the fed does not have the capacity to do QE anymore, then why so many articles all year about how it was inevitable, only to state the opposite now?

drivenZ's picture

Because they need to push the "Bernanke is the devil" agenda. And the sheep on ZH all fall right in line because they don't think for themselves, they take ZH as gospel. The site is a great resource but you need to **read** every article critically, which most people don't do, unfortunately.  


**read** -like actually read and then check sources before forming an opinion.  

fonzannoon's picture

So did I just think for myself? YAY (jumping up and down and clapping hands)

drivenZ's picture

compared to the normal 10-20 posts just saying "BitCHez" or some form of "f*ck Bernanke" or some rambling threatening diatribe about how "the end is near and Banksters ruined everything"....yes, you're atleast in the top 1% of all commentors. The site would be much better with more dissenting opinions.



fonzannoon's picture

You are correct that anyone who follows anyone else blindly and does not ask questions is going to be worse off for it. Like I said, I can see ZH taking the contrarian position that QE will not happen. But to build this big point that it functionally cannot happen flies in the face of a lot of what they said all year. I am surprised that more people have not noticed it.

ParkAveFlasher's picture

How does anyone know that QE isn't happening right now?  Accurate information is now only streamed to the public on a revisionary basis i.e. when the public can do nothing about it to protect itself.

fonzannoon's picture

it very well might be. my point is zh is saying it's not possible. after saying it was inevitable. that was my only point. 

StychoKiller's picture

"The Creature From Jekyll Island, a Second Look at the Federal System", 5th Ed., G. Edward Griffin, ISBN:  978-0-912986-45-6

Explains why the Fed printz...

banksterhater's picture

It's happening through currency swaps to the EU and back, the Criminal Fed makes it hard to follow.

earleflorida's picture

Brilliant! jest absolut`tilly brilliant I mus say:

So, now instead of Hilsenrath at the "clarion call' of the fed... it's now Olson with the wrestle 'fedmania' podium, calling the balls and strikes? Justice be done ole wise 'fonz', as Olson's  'rounding error' is a mere canard on a 'hot-tin-fairy-tale precipice'... a story juxtaposed upon the ~45ml foodstamp recipients and the ~14% real unemployment that's wrapped with counterfeit-fiat TP!

McDonald's and Burger King must be 'flippity-floppin' more temp's than 'slime burger's', and you... who reads outside the lines...


Ps. gotta hand it to CNBC, obviously your source of unabridged grandiose cherry-picking timely truthsaying... ole wise one?

Quinvarius's picture

LOL.  QE has accelerated.  Stop waiting for the announcement.  You think JPM lost 7 billion dollars on 40 to 1 leverage and didn't get a bailout?  I can see the actual spike on the money supply charts where the Fed overpaid JPM for some garbage or other to balance out the whale trade losses.

drivenZ's picture

Yes, that's what i think. seeing as they have quarterly revenues of $20-25B and doing 4-$5B in profits a quarter, no i would not expect a company to need a bailout over that size loss. 

q99x2's picture

Only so much the FED can do to destroy the US economy, move trillions from the middle class to banksters and arm the DHS before being arrested and thrown into prison M'fers.

buzzsaw99's picture

The Fed doesn't look at the market move, they look at the underlying economy...


LIKE HELL THEY DON'T/DO!! lying cork soakers, bastidges, sum na bitchez!

resurger's picture

The impact on gold, gas, oil, & silver will be "psychological."

Victorio's picture

Ten years ago did you ever think you'd be betting on the market going up when everything is going to shit just because the CB's hit ctrl+p? 100% chance short term gain, long term ultra-fail.

Thought criminal's picture

I really don't see how FED can do another round of QE when they didn't do it last september under much worse conditions. The crucial question now is what will drop most if there's no QE announced - whether it will be the commodities again or the insanely bloated equity market this time.

Dr. Richard Head's picture

"We can only steal with abandon while handing it to our bestest friends until even the most sleepy of sheep starts to ask what the fuck we are doing. We are nearing that point. I believe it is about $650 Billion left to go. After that, I would expect Molotov cocktails to begin hitting the Eccles."

Dr. No's picture

Translation:  The FED will do whats in its best interest and shun criticism to Congress when those best interests counter what is being published by MSM.

Assetman's picture

You are EXACTLY on point, sir!

It also doesn't matter a rats-a$$ if an ex-Fed governor agrees with the Delusional Doctor Bernanke or not.  The Fed will do what is in their best interests-- and that runs parallel to the interests of the primary dealers they serve.

Whether the thinking is right or wrong, the Fed has given Congress a free pass over the past 3 years by essenitally financing an ever higher budget deficit at ever lower rates.  That cannot-- and likely will not-- last forever.

At some point in time, the interests of the primary dealers will conflict with the interests of those "serving" in Washington DC.  Thats when the SHTF.

I wouldn't be surprised, though, that the Delusional Doctor doesn't do more QE in the near term-- as he continually is led by the misguided belief that he can actually make a real dent in the unemployment picture-- which is at least partially structurally driven.  Despite all the evidence to the contrary, Bernanke believes the unemployment picture is primarily cyclical.

And as long as the next QE move doesn't put a major dent in the banks (please by all my worthless MBS before the real collapse), all is good.

Dr. Engali's picture

50/50 I think they may or may not that's going out on a limb

centerline's picture

Yeah.  I pretty much started to skim the rest of the article after that.  Just the usually smoke screen.

mademesmile's picture

Rounding errors.

Hahhhhhahahahahahahahahahahhhahahah breath hahahahahahahahahahahahahahahahahahah

I guess the consistant downward revisions are are rounding errors as well


slaughterer's picture

Last week's NFP will probably be adjusted upward.  On a non-seasonally adjusted basis employment actualy rose by 252K.  Wall Street knows this but is keeping hush about it: what is taking place last week and this week is a gigantic bull trap.  

banksterhater's picture

WRONG. The Household was down over 100K, those liars selling used electronics on Ebay and saying they've had a job for 4 years are finally capitulating to their deceit. Only 10% of new jobs come from Fortune 500 global corporate traitors.

Sandy15's picture

It sickens me to watch Declining volumes down to 10 milliion on the day but watch the futures move upward or barely sell off.  The Bernack will not allow this market to pull back at all.  Pull backs in the market are healthy, it allows investors to step in to buy.  However any tiny pull back the NYFed jumps in to pump and pump.  They are the 50% that is still there.  They trade from one account to another.  Check out their records on line, they're called:

  • Maiden Lane LLC

  • Maiden Lane II LLC

  • Maiden Lane III LLC


Technicals have not worked since March 2009........ Abolish the Fed.  Can I copy my money to pay my bills too?  It's the same thing.....

If the Fed does more QE, I will start coping my money to pay my bills may cause me to go to jail, but then I can get paid to be on TV for interviews, I can get book deals and maybe even a movie deal out of it........ however I would demand to be paid in gold.


banksterhater's picture

coping or copulating your money? Surely you mean something else

Shizzmoney's picture

"I can thank the Fed for making rentiership a vital source of our yearly profits."

- Jaime Dimon

Dollar Bill Hiccup's picture

No QE on Thursday, bad politics. The Hilsenrath article on weekend was published under another name, H. was only a contributor. It's like a black cat in the mirror, a ripple in the Matrix.

There is mounting resistance against kicking the can and letting politicians hide with their heads up their arses.A mounting chorus of well thought out argumentation, circling closer and closer around the FED's inner sanctum, on the diminishing returns of the act. Of course B. would not state this clearly in Jackson, it would have broken the lie. They need to let the lie cool off and wait until another crisis, which of course is waiting on the horizon. There will be QE, but not now.

B. puts the pin back in the grenade.

Landotfree's picture

The only thing the Fed can do is attempt to convince the lemmings that the system is sustainable, thereby extending the day of doom a little longer.  Not much the Fed can do to ultimately stop the collapse as the Fed would need unlimited power to do so.  Since the source of unlimited power hasn't been found let alone captured by Humans, the Fed can't do anything really in the big scheme of things.  

You are in the very beginning, the collapse has barely started.

kito's picture

and the fed continues its save the dollar campaign..........the ship goes down one way or the other, and ben isnt bringing the dollar with it...........................the fed continues to throw out those psyop terms like "fiscal".........ben must make sure the public believes its all on congress......................................

Deep79's picture

All this talk of hyperinflation on this site is amazing. I agree 100%, no way they let US dollar collpase, they aint stupid.

It will shock people how high the dollar is gonna go.

I have been sayihng for over a year now, you think TPTB will allow a currency collappse, they lose everything just like the rest of us poor slobs.

We get a 50-80% correcion, they still rich, ya so what, a guy worth 200 million is now worth maybe 150 million, but now everything is 50-80% cheaper. 

It then starts all over agian this sick game.

Quinvarius's picture

Actually they don't have a choice.  They think you are stupid for letting them print endless amounts of money only because they didn't call it QE.  And pretty much anyone who is a deflation theory conspiracist is as stupid as the Fed thinks they are. 

Deep79's picture

A hyperinflationist is just as stupid if not more.

We have had MASSIVE inflation for last 30 years, look around you idiot.

EVERYTHING has gone up 1000% or more 

It was just very well hidden.


Quinvarius's picture

I am an idiot for being right?

kito's picture

break it up children....break it up.....nobody is right........yet.............however, the only way hyperinflation happens is if the federal government gags and ties the fed, and throws it in the river with cement shoes............

spentCartridge's picture

Bag of snakes & a river anyone?

Bay of Pigs's picture

"It will shock people how high the dollar is gonna go"

So, the DXY clings to 80 yet again? Down from 120 ten years ago. Gold from 250 to 1730 today, and silver 4 to 33. Real assets holding their value.

The USD is very weak. It isn't going higher in real terms. It's losing purchasing power all the time. It's called inflation.


kito's picture

@ bay----there arent many who disagree with your point...but we are talking about hyperinflation---destruction of the dollar as a result of reflexive printing due to heavy deflationary/delveraging headwinds.............inflation, the expansion of the money supply and resulting price increases, has worked for the monetary puppeteers for the past 40 years......they have been able to gorge themselves at the expense of the populace........that is over now........and they recognize it.....and they arent going to take out their food supply........better for them that the implosion doesnt involve the dollar...............................hence bernankes campaign for fiscal responsibility.................

AT's picture

I love people like you. Keeps the gold cheap while I stack more!

Bay of Pigs's picture

All these fuckers do is lie through their teeth all day long...

"hey, look over here!"

banksterhater's picture

These Fed Fuckers should be BANNED FROM TALKING! Hoenig spouted off for years and THIS FUCKER NEVER HEARD IT. All are lieing sacks of shit.

lemonobrien's picture

it's all a pump & dump to keep the markets from crashing before the election; they's not gonna QE. sound and fury signifying nothing.