Bernanke Discusses "Theoritcal Limit" To QE, Says Too Much "Would Hurt The Market"

Tyler Durden's picture

Some rather unexpected rational insight out of Bernanke responding to Patrick McHenry's question on whether and how much more QE the Fed can do:

  • "I assume there is a theoretical limit on QE as the Fed can only buy TSYs and Agencies"
  • "If the Fed owned too much TSYs and Agencies it would hurt the market"

And separately:

  • "Higher Inflation Goal Doesn’t Have Lot of Fed Support"

But in closing:

  • "We still have some capacity at this point."

Perhaps the market was expecting that the Fed would admit it can buy ETFs and REITs like the BOJ, or that it can sell vol into the single digits, as its New York Fed trading desk is rumored to be doing, but this is hardly the stamp of endorsement to buy any stock come hell or high water that the algos now expect out of the Fed.

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slaughterer's picture

What does he mean by "hurt the market"?

Quinvarius's picture

Exchange "hurt" with "become", and it is too late.

TruthInSunshine's picture

Algos (even if they, at least of today, lack self awareness), will go into a crushing depression that will collapse the system when The Bernank ultimately appears from his Bunker, in a psychotic fever, pointing his fingers in the air and yelling (as another ZHer eloquently put it) "Bang! Bang!"...."Bang! Bang!!!!!"

And that's the day that even Bernank-ified markets die quickly.

nope-1004's picture

The US housing market is situated on strong market fundamentals.  A housing bubble is unlikely.

Benocide, 2006

The current fears of inflation are largely overstated.  Increasing prices for food staples in developing nations can largely be attributed to the people of those nations seeking more sophisticated diets.

Benocide, 2010


Ben Bernanke lies.  What's to say he didn't today?


Hype Alert's picture

IIRC he also said subprime crisis would not lead to a recession.

The Monkey's picture

Financials, gold and silver not buying it today. Still, I don't think we're done.

Hold tight.

LongSoupLine's picture



"I will not monetize the debt" - Ben "fuck you" Bernanke

nuff said...

TruthInSunshine's picture

I almost forgot the obligatory:



"Theoretical limit."



zaphod's picture

Ben is full of crap on this.

He is just trying to convince the market that it's not a problem if he prints and to not enter an inflationary spiral because he will stop before it's too late. Trust him.

Ben has no intention of stopping, when SHTF he'll print regardless. Stay focused on that, everything else is smoke and mirrors.


kito's picture

you dont understand the fact that ben has no allegience to the interests of the united states...he cares about his source of power, the dollar, and the banks that he serves......he has no intention of printing into hyperinflation.... why would he? what does he gain? what do the vulture creditor banks gain? way he prints to infinity...none..he full well understands the limits of printing.....i have said this many times, the ship is going down one way or the other, ben knows this, and he isnt going to drag his precious fiat dollar to the bottom with the economy...ben has already begun to shift responsibility to tyler pointed out yesterday, "fiscal" is popping up in his speeches....he will one day turn to congress and say..."sorry, this dog dont hunt anymore"...........

Diplodicus Rex's picture

Forgive me if I show my ignorance but aren't you confusing inflation with hyperinflation. Although they share 9 letters the two phenomena could not be more different.

"no way he prints to infinity" - I take it from that you are advocating that he will not cause hyperinflation by pressing Ctrl-P in a loop? Hyperinflation ocurs when there is an abject loss of confidence in a currency. It is not necessary to hit Ctrl-P for this to occur. An extraneous event (Black Swan) could take place whereby it is finally acknowledged that the Emperor has no clothes. The value of the FRNs would plummet without an single additional one being printed. This would be Hyperinflation. Benocide has no control over this. It could occur without any further printing. Conversely, it could be caused by more printing but its not predicated on more printing.


Please feel free to correct me if I'm wrong.

TheCanadianAustrian's picture

You're correct. Exponential printing definitely helps guide hyperinflation along its tracks, but it's by no means a prerequisite.

kito's picture

"no way he prints to infinity" - I take it from that you are advocating that he will not cause hyperinflation by pressing Ctrl-P in a loop? 

yes, that is correct, he will not print until there is a loss of confidence in the currency ie --weimar..........

im not confusing inflation with hyperinflation, as you certainly dont need to have the former as a prequisite to the latter...i never stated that...........



sessinpo's picture

"yes, that is correct, he will not print until there is a loss of confidence in the currency ie --weimar"

Weimar is not a comparative example for the situation in the US because the US dollar is the world's currency reserve. In fact, the Weimar hyperinflationary event is what has seeded the conspiracy theory that the US may divide itself into two currencies, one domestic and one for international trade - a situation they think would be an environment for domestic hyperinflation while protecting the dollar internationally. Think of it as banks taking their bad investments and taking it off the books by putting those bad investments in some subsidiary of some other corporate form to remove bad banking from good banking. This nonsense trick should sound familar to everyone here.

Weimar was buying other currencies which greatly reduced their own currency. As the US is the currency reserve, this is not likely to happen. In fact, the US government has always encouraged the exact opposite - they want everyone to buy dollars. High dollar demand, increases dollar value relative to others and allows the FRB to print, ala QE whatever, with less inflational effect domestically. In other words, we were exporting inflation. The problems with the Euro is throwing an unforeseen monkey wrench into the situation though and I think BB is lost.

BB has been doing one thing consistently over the last few years which I think should be noted. Each year during testimony, he has been trying to put more responsibility and blame on Congress. In other words, I think he sees the writing on the wall and is trying to protect himself from the fallout of a collapsing economy. You know there will be people blaming BB and BB wants to be able to say he warned Congress that any dire economic situation could result from fiscal policy, not monetary. Fiscal is the responsibility of Congress.




Diplodicus Rex's picture

Isn't that what you just said here?:

"he has no intention of printing into hyperinflation"

zaphod's picture

Kito, when the market hits 600 again, pension plans everywhere are bust, layoffs are sky high, even less people can pay for their mortages and debt, companies are closing, interest rates spike because of the hugh debt the government demands to stimulate, do you really think Ben will say "I'm going to let the ship go down to protect the dollar"

There is zero chance of that happening. I'm not saying the above will happen, but if it does Ben will print. He is an academic and has no spine.

kito's picture

lets fast forward.......deflationary pressures have eaten qe3 for lunch...things deteriorate fast....he understands that qe3 didnt work, he also sees the writing on the wall...print again, and again, knowing it will only create a total loss of confidence in the currency AND the country sinks, or hand the ball to our esteemed government representatives/leaders, save the dollar, save the bank creditors, sacrifice the debt slaves AND the country sinks....i dont think its that hard to see.........

purplefrog's picture

The Bernank just threw the Obaminator under the bus.

vast-dom's picture



Lies, Damn Lies and LIBOR I've been hesitant to write about the LIBOR scandal because what I want to say goes so much further. We now know that Barclays and other major global banks have been manipulating the calculation of LIBOR through the quotation data they provided to the British Bankers Association. What I suspect is that this is not a flaw but a feature of modern financial markets. And if it was happening in LIBOR for between 5 and 15 years, then the business model has been profitably replicated to many other quotation-based reference prices.

Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable.

Over the past 25 years the forces of regulatory liberalisation and demutualisation of markets have allowed the largest global banks to set the rules, processes and infrastructure of global markets to their own self-interested requirements. Regulatory complexity and harmonisation benefit the biggest banks disproportionately, eroding the competitive stance of smaller, local banks and market participants. This has led to a very high degree of concentration in a very few banks in most markets that determine global reference rates for interest rates, currencies, commodities and investments. If those few collude with each other - as Adam Smith warned was always the result - then they impoverish us all.

We have allowed markets to evolve in ways that make supervision of markets almost impossible. Many instruments trade off-exchange or in multiple venues, making it nearly impossible for any single investor or regulator to supervise trading to prevent or detect manipulation or abuse. Many financial instruments are now synthetic compilations of underlying assets and derivatives, with multiple pricing components determined by reference to other prices or rates. Demutualisation and regualtory reforms stripped exchanges of the self-regulating interest in preventing manipulation and abuse by their members as mergers, profits and market share came to dominate governance objectives. 

Off-exchange trading has been allowed to proliferate, creating massive ill-transparent and largely illiquid markets in almost every sector of finance. Pricing in these markets is based around calculated reference rates which, like LIBOR, are open to abusive quotation and data input practices. Many OTC derivatives are priced and margined using reference rates calculated against quotations unrelated to actual reported transactions. Synthetic securities such as ETFs are another example of an instrument that prices off a reference rate rather than the actual contents of an underlying asset portfolio. These instruments are open to consistent abusive pricing as a means of incrementally impoverishing those market participants who are the krill on which the global banks thrive.

How has it been possible for banks to grow from less than 4 per cent of the global economy to more than 12 per cent of the global economy without impoverishing others? How has it been possible for profits in the financial sector to be consistently higher than profits from other human endeavors with more tangible products or impacts on our daily lives - such as agriculture, transport, health care or utilities? How has it been possible that banks derive their profits not from the protected and regulated activities of deposit-taking and lending, but from the unsupervised and often unknowable escalation of off-balance sheet assets and liabilities? How has it been possible that pension savings have increased while pension returns have declined to the point where only bankers can expect a comfortable old age? Global banks have built the casinos and tilted the odds in the house's favour by rigging the data that determines the outcomes of most of the bets on the table. Every one of us that sits at the table long enough - whether saver, investor, borrower, taxpayer or pensioner - will be a loser. It is not a flaw; it is a feature.

There is a reason that financial infrastructure used to be dominated by mutuals. Mutual gain and mutual liability created a natural discipline on excess and on rogue elements that would impoverish their peers. 

There is a reason why trading was restricted to exchanges, and exchanges and clearing houses used to be self-regulating, and even had responsibility for resolution and liquidation of their members. Direct responsibility, authority and financial control meant that they could exert very powerful and immediate consequences on those members identified as abusing the market or investors.

The investigations into market rigging are just beginning. Paul Tucker opened the box yesterday when he admitted that he could not know whether the abuses discovered in setting LIBOR had spread to other synthetically calculated reference rates. As events unfold, it may be that we begin to appreciate just how deeply vulnerable we have become to predation by bankers with no stake in a local economy or in the local quality of life of the people they impoverish. A reckoning is needed, and then a rebalancing toward more local and mutual provision of essential services and market infrastructure that serves markets rather than those few bankers on the board. 

As a start, regulators should consider punitive restrictions on the sale of instruments which price on reference rates unrelated to reported market transactions or underlying asset portfolios. Pricing should reflect real market transactions rather than guesstimates talking the banker's book. 

We need to rethink as a society what banks are for, what exchanges are for, and what clearing houses are for. If they are for the profit of the few at the expense of the many now, that is because it is the business model we have permitted. If banks, markets and clearing are protected because they have a social function, we should make certain that social function is adding value. If it isn't, then we need some new models and some new rules.

11b40's picture

+ 80 trillion, London Banker!

rlouis's picture

Yesterday I caught a moment of Larry Crudlow exclaiming that he "couldn't find a victim of the LIEbor manipulation" 'Where's the victim?  I had a LIBOR loan and it helped me'

["pretty accurate" 'less accurate']


fireangelmaverick's picture

Too Little would hurt the markets...QE has to be just right , like Goldilocks and we at the Fed have been able to figure that amount...down to the nearest Quadrillionth!


Stuart's picture

really, they ARE the market. 

Mr Lennon Hendrix's picture

Tyler maybe you should have writtin an article about how the Senate and Bernanke each said the words, "President's Working Group on Financial Markets" yesterday because it is this group that is buying equity, and other such instruments, to prop up zee markets.

AlaricBalth's picture

The Plunge Protection Team. 

Tim Geithner, Ben Bernanke, Mary Shapiro and Gary Gensler. If this is the best we have, we are in trouble.

Oh, wait...

fonzannoon's picture

I would refer you back to the word "theoretical"

NJBDeflator's picture

is the ny fed really selling vol?  how would they do that?  simply by selling exchange traded instruments?

Meesohaawnee's picture

and this idiot has a PHd? ya think?

MillionDollarBoner_'s picture

I'm getting fed up with this.

Benny, you've accepted the chocolates and flowers, been chauffered around, seen the movie, eaten the meal, drunk the drinks...

Just put out already, for fuck's sake!

bxy's picture

I would like to hear more about this NY Fed rumor.  Selling Vol, really?

Xanthias's picture

Me too.  Actually noticed slight UPTICK in VXX today.

irie1029's picture

It really kills me how Bernake and Geithner act like they are so fricking wise.    In reality all boils down to common sense.

Cast Iron Skillet's picture

well, here's my theory: I think the Bernank is holding back on QE to keep some powder dry in order to be able to do something when Europe collapses.

iDealMeat's picture

Fed will 'ctrl P' to buy trillions of Euro Bonds to keep it from collapsing..


The show WILL go on.


Bobportlandor's picture

Or forcing europe to do something so he can continue to hold off till next year.

Paddy cake paddy cake Bernanke man
Conjure up Fiat as quickly as you can        
Inflate it, loan it, give it to us con men,        
We'll leverage it margin it as quickly as we can.

See I'm learning.

Catullus's picture

Monetize everything!

Apparently that's limited to actual things. This is bullshit. Ugh.

riley martini's picture

When the fed buys tsy and agencies it doesn't hurt the market it kills the "market" . Fed controlled prices inflated to the upside is not a market it's a controlled exchange to benefit chosen parties . Markets require price discovery .

bxy's picture

P-r-i-c-e D-i-s-c-o-v-e-r-y?  I vaguely remember hearing something about that once.........................years ago

Meesohaawnee's picture

actually they are wise..very smart. How else can you get away with the perfect crime stealing and looting from a whole country funnelling its welth from so many to a select few and then call it "stimulative" when its the very least. Brilliant in my world.

wandstrasse's picture

too much heroin would make a long-term heroin addict addicted to heroin.

francis_sawyer's picture

 "We still have some capacity at this point [to jawbone]"


Addenum: Lies have no theoretical limits...

BeetleBailey's picture