On Bernanke's Columbus-Like Voyage To The End Of The Monetary Policy World

Tyler Durden's picture

Whether the optics of a jobs-related target for the Fed's QEternity are election-based public relations, from-the-heart sentiment of an ivory tower academic neck-deep in the reality of his failed ethos, or well-intentioned more-of-the-same Krugmanite 'we need a bigger boat' print til-we-stink policy; it is relatively clear that the Fed has changed course. The longstanding problem at the Fed has been that while each policymaker more or less agreed that guiding policy by a rule made sense, they could not collectively agree on the rule. Morgan Stanley's Vince Reinhart notes perfectly that at its September meeting, the Fed effectively evaded the issue by setting QE off in a general direction, much in the same way Columbus pointed his three ships West and expected eventually to land in India. The history books admire the audacity of a man with a vision. Columbus sailed in the direction toward the known world’s end. Of course, he also sailed further than expected and landed on a completely different continent than planned. If the Fed has not acted consistently over the past few meetings, how will market participants infer future action?


Morgan Stanley: Charting the Course

Most analyses of unconventional central bank action agree that policy works best if it links the instrument reliably to economic data or forecasts. The logic of such conditional policy rules (also known as open-ended programs) was worked out in Bernanke and Reinhart in 2004 and has been a running theme in the work of Michael Woodford, who summarized this view at Jackson Hole.

The fixed point on the Fed’s compass is jobs. As its statement related,

“If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”

Market participants will be able to price expected future Fed actions only to the extent that the Fed acts consistently. The same two reasons why we were wrong about the Fed’s willingness to launch QE3 worry us about how the Fed plots its course.

  1. We thought that the Fed thought it acted appropriately in June. Policymakers had the opportunity to reset the monetary policy bar in June. They chose to extend Operation Twist until year-end. This seemed to us to show that the Fed was resigned to poor economic performance because that policy initiative neither pulled the unemployment rate below its long-term norm nor pushed inflation up to its goal. To accept this outcome revealed doubts either about the efficacy of or its ability to use its policy instruments. Between the June and September meetings, data disappointed. The Fed’s own Survey of Economic Projections (SEP) puts the central tendency of GDP growth for 2012 three-tenths percentage point lower over those months. But the complete picture is more mixed. The traditional inputs in monetary policy rules – the unemployment and inflation rates – are, respectively, unchanged and three-tenths higher in the SEP. Meanwhile, financial conditions eased considerably, more on the back of the assurances of ECB President Draghi than those of Chairman Bernanke. With the economy no worse and financial conditions easier than in June, the Fed nonetheless provided more policy accommodation in September. Take your pick, either the old stance of policy or the new one is wrong.
  2. We thought that they had an intelligent plan for December. In its decision to extend Operation Twist to year-end, the Fed created a perfectly unobjectionable opportunity to revisit the size and composition of its balance sheet at its December meeting. Part of the Fed’s current legitimate concerns about the economic expansion traces to the ongoing strains spawned by the sovereign and banking crises in Europe and the elevated risk of a sudden stop in the US federal budget on New Year’s day. At their December meeting, Fed officials will know a lot more about both as the ECB translates words into action and the US election puts the fiscal cliff in stark relief.

Even more important, delaying a decision on the balance sheet would have given Fed officials a bit more time to hammer out a compromise on coherent conditioning language to tie action to the economic outlook.


The history books admire the audacity of a man with a vision. Columbus sailed in the direction toward the known world’s end. Of course, he also sailed further than expected and landed on a completely different continent than planned.

If the Fed has not acted consistently over the past few meetings, how will market participants infer future action? Has it adapted a hierarchal mandate in which it will work first to reduce unemployment until it reaches some barrier of distaste on inflation? Or was the phrase “in the context of price stability” snuck in to trump policy activism?


We shall trust them by their works, which will be learned in the fullness of time.

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LULZBank's picture

Stop making logic out of plain money printing Bitchezz!!!

TruthInSunshine's picture

I genuinely don't understand the dramatic, hyperbolic & now nearly unanimous over-statement & misinterpretation of Bernanke's announcement on Thursday.

Wthout repeating every word explaining why, here's a link to my post made in the thread below on this subject matter:


Precious's picture

Bernanke just put the nail in the coffin of the land of opportunity.

bilejones's picture



I thought Brazil would be amongst the least effected.

Coldfire's picture

Brazil is the land of opportunity. And always will be.

AldousHuxley's picture

then why did that jewish facebook kid immigrate to US go to harvard, make billions off of bs IPO, then "move" to singapore?



OpenThePodBayDoorHAL's picture

Actually the real quote is much better:

"Brazil is the country of the future...and always will be"

Michael's picture

Please do not respond to this comment, it's for information purposes only.

Let's not forget what set off the Muslim countries revolutions.

Reason #1; Police and Government Tyranny and Torture.

Reason #2; US Federal Reserve Corporation exporting food inflation with their monetary policy all over the planet.


Suicide that Sparked a Revolution



Justice for Khaled Said, End torture in Egypt


Weekend Viewing;



Complete and Total Worldwide Economic Collapse 2012


Matchbox Twenty - Back 2 Good (Video)


Dutch Bilderberg member openly says that everyone who attends, agress to uphold "the Bilderberg Code".


On another note, I don't think the CIA, Mossad, and MI5 will ever again be able to pull off the shit they did to the Muslim world, the American people, and the rest of the planet ever again.

See what they did weekend viewing assignment;

Primmer video I made to this series;

The Precautionary Principle Who Benefits?


The Power of Nightmares, (Part 1/3), "Baby it's Cold Outside"

The Power of Nightmares Part 2: The Phantom Victory -- by Adam Curtis

The Power of Nightmares Part 3: The Shadows in the Cave

El Oregonian's picture

Cristobal Colon is my ancestor, and Ben Bernanke, I can assure you, is no Christopher Columbus...

falak pema's picture

he never said anything about MArs! 

SafelyGraze's picture

link to fed mbs program:


they state $6.5B per week in net purchases

it's hard to tell what's taking place. the fed buys an unnamed number of 30 year 3.5 coupon shares for 7 billion and sells back an unnamed number of 30 year 3.5 coupon shares for 1 billion a week later.

were they the same shares? did the fed merely launder them? buy 'em high, sell 'em back low. if so, what a ridiculous charade.

it would have been simpler just to issue the 6 billion difference by crediting the account of FredFan.


SafelyGraze's picture

truthInSunshine says

I genuinely don't understand the dramatic, hyperbolic & now nearly unanimous over-statement & misinterpretation of Bernanke's announcement on Thursday. ..

thanks for the link to the previous post. good point about existing fed printing for MBS at $25B/mo.

viewed from that perspective, the Nank was saying
"hey, I've been shelling out 25B/month to Vanguard and BlackRock (via FedFan), but jobs are STILL DOWN.
so listen up -- now I'm giving 40B/month to Vanguard and BlackRock, and I won't stop until there are MORE JOBS.
actually, even then I'm not going to stop.
are we clear? jobs or no jobs, I'm giving an additional 15B/month to Vanguard and BlackRock, because they own shares of FredFan which is obligated to pay for tranches of bundled mortgages on abandoned houses.
there is absolutely no connection between giving money to Vanguard/BlackRock (via FredFan) and job creation.
there is no connection between this continual gift and the number of people living in houses.
there is no connection between this gift and house prices.
it's just a gift.
thought everyone would like to know. 
transparency, etc.
meanwhile, blah blah wealth effect and blah blah price inflation and blah blah velocity of money and blah blah employment."

oldman's picture


Thanks for the link. It confirms my impression that the situation is so far out of hand that no one knows what to do---especially the Fed. Bernanke does give the seems to be like a 5 year-old lost in the forest and just wandering in circles until the light fails. He now seems to be completely in the dark--and no wonder--it is too late to change course.

I am curious, however, regarding your comment of the 'Big Short'. If it is convenient to do so, I hope that you will flesh that out a bit more--in the sense of time and asset classes.

Thanks again for the post, Truth----om

TruthInSunshine's picture

If my interpretation is closer to the mechanics of what was announced than what the herd consensus is proclaiming, any high beta asset classes are going to have the Fed "put" pulled out from under them, and consequently, yields on bonds and other low beta instruments are about to see some of their largest YoY increases in % terms that we've seen in quite a long time.

Once the market digests the reality of what was said, they'll call The Bernank on this clearly calculated attempt to jawbone higher inflation expectations, and then it really will be time for The Bernank to put up or shut up (especially with treasury/bond yields rising).

I genuinely believe that on Thursday, Bernanke passed the baton back to Congress & The Executive Branch, essentially admitting he can not jump the looming fiscal cliff.

dolph9's picture

I'm going to disagree here.

What we are reacting to is not the numbers per say, but rather than finality of it...open ended operations, extending low rates out (which means they'll be extended even further when the time comes), etc.

The Fed tacitly admitted two things:

1)  It doesn't know what the fuck it's doing.

2)  Nonetheless, it will keep doing those things pretty much forever.

Now, any sane person has to react to this, in some fashion.  Let us not take the knee jerk reaction and dump all of our cash and buy Apple stock and go into debt to live in a McMansion.

Rather, let's keep on stacking and dropping out / preparing with even more gusto, with even more certainty that this won't end well.

TruthInSunshine's picture

If flow (in this case, of fresh and un-sterilized fiat, to primary dealers) is what boosted commodities, equities and other 'risk-on' classes of assets based on prior episodes of Quantitative Easing, while suppressing yields on bonds, then the FOMC announcement on Thursday not only merely boosted that flow by a mere 15 bln USD per month (based on incremental increase in MBS monthly purchases), but it actually shut off the spigot for the flow of un-sterilized fiat based on deficit monetization by the Fed.


Like I said, I can't remember any instance whereby the gap was wider between what the Fed did and what it was reported that the Fed did, so emphatically, by so many.

If this was the "Bazooka" that many claim, and a paradigm shift for the Fed, then....wow....words fail me.

socalbeach's picture

From the Fed statement,

http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm (emphasis mine)

"the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month... and it 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."

So if they were purchasing $25b/month before (from reinvestment of principle payments), I interpret their language as saying they are going to purchase $65b/mo now.

TruthInSunshine's picture

This is the text from the FOMC release, and while it's poorly written, I am relatively confident that the 40 billion in MBS monthly purchases referenced will be the total (since they never specifically referenced MBS purchases by QE previously, and those MBS purchases were a somewhat significantly less 25 billion-ish monthly).

FRB: Press Release--Federal Reserve issues FOMC statement

"To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month."

Plus, the FOMC statement goes on to reiterate the total purchases of MBS+Treasuries (non-sterilized) as 85 billion monthly:

"These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."



When I find verification (or not) I will post source/link.

socalbeach's picture

The total of $85b is for "longer-term securities" which is consistent with my interpretation imo.

$85b = $45b Twist long term Treasury purch + $40b long term MBS purch + $25b long term MBS principle reinvestment - $25b long term MBS & agency debt principle paydown.

Maybe John Hussman will clear up the confusion in Sunday's (9-16) commentary: http://www.hussman.net/

SafelyGraze's picture

who gets the 40B/month? Freddie and Fannie?

Who are the major stockholders of Freddie and Fannie?

And who owns the stock of these (institutional) stockholders of Freddie and Fannie?

I want to follow the flow, but the river goes underground at this particular point.

Someone shine a light, please.

francis_sawyer's picture

Well... fuck it... you asked 4 it... (Someone shine a light, please)



SafelyGraze's picture

thanks for the link

now the dancing starts

Yen Cross's picture

Can I commision that "artist" , to do some "man cave art"? We are all going to be living by the "torch", on a"cliff", when this shit ends!

LawsofPhysics's picture

There is no fucking eloquence in fucking printing. Let it all collapse already and let's find out the real value of everyone's labor. Time for humanity to learn what wealth really means, fucking bring it, bitchez.

itstippy's picture

"Let it all collapse already and let's find out the real value of everyone's labor."

Sonny, there was a time (about 30 years ago) that I felt the same way.  I'm no longer at my peak. I can't pull 70-hour work weeks and stay razor-sharp anymore.  Shit, this morning (Saturday) when I woke up I had to fumble for my glasses so I could locate my hearing aids and find out what the fuck Mrs. Tippy was blathering about in the kitchen.

My labor has been quite valuable over the years.  Now, I'm no longer the right guy to run the show.  That's OK.  I'm down to a 30-hour work week.  I serve in an advising and consulting capacity, and I keep the books. Still valuable, but not like the Old Days when I was runnin' with the younguns and kicking serious ass. Fortunately I converted a lot of my valuable labor into wealth over the years. I got some breaks along the way, I know.

I don't run the show anymore, but I do still own the majority stake.  For that I get an extra cut of the take and I ain't ready to give it up.  Collapse comes our way the young go-getters are going to face one Hell of a rear guard action from this old timer, provided I can locate those fucking hearing aids and my bifocals don't interfere with the cross hairs on the Leupold.

Maybe we should team up against the opposition instead?

SmackDaddy's picture

My opinion completely depends on what you did.  Were you in financial serrvices?  Fuck you then.  Producers, however, will be spared.

itstippy's picture

"Producers" are spared, eh?  Does that include trash hauling?  Endless dumpsters full of stinking, nasty, rotting garbage.  That's been Tippy's bread and butter.  Also a sideline in lead remediation and other toxic hazmat cleanup (Nephew's idea, and a good one).  We don't produce shit; we get rid of it.  Someone's gotta do it.

SmackDaddy's picture

Yeah, maybe I should have said "people who actually do shit".  Trash hauling definately counts...

bugs_'s picture

how far? how far? to the point of no return

Jam Akin's picture

The Big Question is what is it that really spooked the Fed into taking the new course of action at this time?   Also:  This is most ironic coming from MS...who represent a potential answer to that question themselves...

news printer's picture
Euro Union changed for the worse

On Thursday will be my weekly column in the Official Gazette of Legal Fri "European Union changed for the worse." In the text, showing the interest they clash in Germany, and what would this imply for the future of the euro zone. The following excerpt:
"A key area of clashes banksters who created the alliance with the Government of France, and German manufacturers is the European Central Bank. Manufacturers need stability, which is more important to them than to keep the euro, and guarantees the stability of an independent central bank, as once guaranteed the Bundesbank. ...



blunderdog's picture

Pay today or pay tomorrow.  Tick-tock.

Anyone remember this guy?



Nid's picture

Conclusion: Election rigging by the fed.

Dr Benway's picture

Is there a "most sane fed" or "best central bank" or "best fed policy"?

kalum's picture

bernanke. May he RIH

Racer's picture

Rotting as long as it is eternal....

falak pema's picture

RIH = Reap in heaven? 

Yen Cross's picture

 As [ EKM ] so observantly, amongst other Z/H contributors , (POSTED).    The " Chair Satan" is clearly long " pharmaceuticals"!

  Quivering lips always lie! If I'm wrong then I'll start a "Parkinsons research foundation chapter!"

falak pema's picture

1453 to 1492 to 2013 is a 560 year odyssey; from fall of Constantinople to discovery of new world to loss of monetary compass; a world made rudderless. 

We are back to Renaissance days, we have to reinvent it, once again. 

Tippoo Sultan's picture

Refreshing indeed; Falak: a student of the chronicle of Mankind, accurately relating the current of History.

Sofa King's picture

To summarize::

1. Something spooked the Feds.

2. One of the Big Banks was tanking.

3. This will help clean their books.

4. Hundreds of thousands of financial industry jobs are saved.

5. Fuck everyone else.

6. Mission accomplished.

uno's picture

talk was Morgan Stanley, if it goes so does the other zombies (JPM, BAC,Citi, GS)

JohnKozac's picture



My guess is one of the Big Banks repo'd Billions of Detritis and the other side panicked and wanted their money back without rolling over the repo 105.

WallowaMountainMan's picture

"1. Something spooked the Feds."


i think its china. china is the bubble. and it has burst.

just my thoughts.