From the "Greenspan Put" To The "Bernanke Guarantee"

Tyler Durden's picture

From Bill Buckler of The Privateer

The Great Falsification

On February 4, the Wall Street Journal ran an article with the title: Investors Place Their Money On Fed.

The gist of the article is that the markets in the US - and everywhere else to a greater or lesser degree - are still willing to bet on two things. One is that the Fed will come out with a new round of stimulus spending or “quantitative easing” sometime between now and the end of June this year. The focus of this reliance at present is on the mortgage paper backed by the US Government Sponsored Agencies (GSEs). They are certainly betting on “help” here. In the month since January 3, the rate on 30-year Fannie May mortgage “securities” has plummeted from 2.96 to 2.66 percent. Meanwhile, the various “guesses” for the size of the next tranche of QE range from $US 400 Billion to $US 1 TRILLION or more.

The great blow-out in the Fed’s balance sheet which began in September/October 2008 was largely driven by their actions to monetise the mortgage-backed securities which had fed the real estate bubble. Now, the markets expect the Fed to come “full circle” and start that all over again. Why? According to one US investment firm, the answer is simple: “We know they’re not going to take their foot off the accelerator. We know that they’re not going to want to purchase more Treasuries because they’re running out of Treasuries to purchase. So that leaves mortgages.”

With $US 1 TRILLION plus annual deficits stretching out into the indefinite future, the Fed is certainly not going to “run out of Treasuries to purchase”. On top of that, there is the $US 2.8 TRILLION of maturing Treasury debt which must be rolled over this year. The simple truth of the matter is that ever since they were rescued by QE1 back in March 2009, the markets have become used to the idea that the financial “powers that be” will not let the concept of “risk” return to sully the rewards they now expect.

The “Greenspan put” has turned into a “Bernanke guarantee”. Ben Bernanke reminded the world that the government does have such a thing as a “printing press” way back in 2002. Since he became Fed Chairman, he has left world markets in no doubt of that fact. And that is what they are relying on.

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rsnoble's picture

Will be interesting to see if monday holds friday gains. If it does we can see more ridiculous upside.  I'd like to point out that big rallies usually end on euphoric moods, as was the case friday. I realize it's an election year and am aware of all the "they won't let it" talk however id also like to point out that this is the biggest mountain of wet, sloppy red hot dog shit to ever be contained in a paper bag that is getting more moist by the day.  This fucker's gona burst one of these days and we're all going to get covered in it.

Cursive's picture



This fucker's gona burst one of these days and we're all going to get covered in it.


Word.  The Bernanke Gaurantee has done wonders for the status quo, but the experience of Japan since 1989 - where the government actually admits to being the buyer of first and last resort in equities - suggests much wealth destruction ahead for holders of U.S. equities.

Irish66's picture

"Eat my shit"  The Help

Libertarian777's picture

unfortunately while the sentiment is correct, the roles are reversed.


The US economy is the one 'eating shit' and Bernake is the one serving it up as pie to Congress.

Spirit Of Truth's picture

Uncle Ben's mud puppy pies! Everyone gets a slice!

SilverDoctors's picture

You could take out your stress and anger at Bernanke with a little Punt The Bernank!
Works every time!

TruthInSunshine's picture

He's merely created yet another period of economic history that's radically warped, and it will end the same way that all prior warped economic periods, caused by such interventionism, do: Like the bursting of a dam.

To deny this is to deny each and every lesson taught by history, consistently and without exception.

Here's what I wrote on another thread as to how far our economy has been turned inside out, in significant part, by The Federal Reserve:


Regardless as to when it ends, all Bernanke has succeeded in doing is damage the long term economy, through massive central bank interventionism, in an attempt to appease those who control the real agenda, at the expense of the overwhelming majority of Americans (and global citizens).


While I definitely lean towards the Austrian School of Economic Theory, I recognize (as Milton Friedman and even Hayek did) that there is a risk of market failure in key areas that can present a legitimate, unjust and imminent threat to human health, property rights, safety and security, and some form of interventionism is required to mitigate against this risk and/or the damages that result when it occurs.

The classic example of market failure is an externality where a factory moves into an existing area and proceeds to pollute the groundwater and air of adjacent private properties with toxic waste, as a byproduct of its manufacturing processes.

The problem society desiring a reasonably free and fair market economic structure should ordinarily be faced with, and that which we would be lucky to be able to have the luxury of debating today, is deciding where this balance should be between having just enough government to reasonably mitigate against the risk of such market failure without going so far as to unecessarily crimp private sector efficiency (i.e. at some point, additional layers of governmental agencies, employees and regulations do not further mitigate against market failures, or if they do, the cost of doing so is too great given the only marginally higher level of prevention and harm in terms of both frequency of market failure and resulting damages that it represents a net loss to society).

But we're so far beyond the point of deciding upon where this balance should be today, because of Deep Capture of our alleged elected representatives by special interest groups, which has led to our new era of Crony Capitalism & Kleptocracy, whereby the Military-Industrial-Financial/Banking complex (that has not arisen or been sustained by free market forces, but by the teet of governmental corruption) is literally snuffing out anything remotely resembling free market economic activity and free markets altogether.

Think about the discount rate, quantitative easing & ZIRP -great examples of how far we've fallen today in the United States whereby we literally have interest rates in every asset class (e.g. corporate bonds, foreign sovereign bonds, mortgage notes, certificates of deposit, bank saving deposit accounts, money markets, etc. etc.) either controlled directly by or influenced significantly by The Federal Reserve, and in no way, shape or form,  by free market forces.

All yield bearing intruments and assets take at least partial cue from US Treasury yields, as these are their main competition for buyers (on a risk adjusted scale).

The Federal Reserve has purchased, as a literal buyer of last resort (given the pricing of issued treasuries), an unprecedented amount of USTs, forcing the yields artificially lower and lower, therefore allowing competing yield bearing instruments to be priced at levels far different than where they would be without such Federal Reserve interventionism. Is this massive interventionism damaging the organic economy?

ZIRP, again as in the case of treasury bond purchased by the Fed, via FOMC rates has artifically suppressed the yields on everything from corporate bonds to foreign sovereign bonds to mortgage rates on home loans to bank deposits in such an incredibly grotesque manner that it has produced massive (and unpredictable, another element that free markets detest - unpredictability/lack of clarity) malinvestment, disinvestment, asset bubbles, misalignment of capital to the production of goods/sevices, a severe mismatch between where a free market would place the price elasticity demand (pricing in massive number of commodities and asset classes is absolutely warped irrationally), and supply/demand curve, etc. etc.

The Federal Reserve has literally broken markets, fostered even Deeper Capture of our alleged elected representatives by special interest groups, and has strengthened the Crony Capitalistic & Kleptocratic class.

Neither Hayek nor Keynes would view our current situation with anything other than great discomfort, and maybe even rage.

Caviar Emptor's picture

much wealth destruction ahead for holders of U.S. equities.

Not just holders of equity. Buying power of the Dollar will continue to get crushed as a direct result. So welath destruction of all but the most wealthy in the US and most everywhere else since the dollar is still reserve currency. And that, friends, will have consequences. 

DaveyJones's picture

yup. Not sure how these assholes think they can fool math and the rest of the world

Pride goeth before the fall - Herodotus

falak pema's picture

As Pride falls Faustian ride installs; we dine with the devil! So Goethe said in Faust his masterpiece's Hero do to us what Germany now wants : 

How Goethe’s masterpiece is shaping Europe

GeneMarchbanks's picture

If I'm not mistaken we're at May '11 highs almost to a T but a green close tomorrow is possible if we get some gibberish out of Greece. That aside, we should start dropping here but I never underestimate the power of the Benny B guarantee.

aceofswords's picture

Gibberish has been coming out of Greece for the last 5 years, tomorrow will be no different, as in...."yeah, yeah, nearly there!....just finalising the finishing touches on the finalisation of the final finalisation of the final finale" etc...   

If anything, it should be the [blatent] words of Monsieur 'the boy who cried wolf' Juncker that should be heeded (for a change)

francis_sawyer's picture

I'm going to do something that's completely out of character and put up a little technical analysis...

Disclosure: I'm COMPLETELY out of stocks & all paper assets (own PMs)... But occasionally I casually observe the 'voodoo' of TA just to help make sense of what doesn't make sense...

I'll put up a simple S&P chart...

To anyone who wants to play alongm you'd then have to switch the chart to WEEKLY candlesticks, then probably add 20-50 extra bars to get a better view...

Basically what I see (& this is totally electronic paper napkin), is that since the 2008 meltdown, the 200 week MA has provided a very good technical boundary (both as a ceiling 4/10) & as a floor, (11/10 & 4-11/11)... Moreover, the 200 WEEKLY MA appears like it's ready to turn UP... Aside from "golden crosses" & the like, this would, technically, be a bullish sign...

If one were looking at the chart (WEEKLY, as I described), one could also see a left shoulder formation along with the beginning of a HEAD formation (basically starting NOW)... This too would be a bullish sign (& probably most technicians would tell you that the HEAD would become a FIBONACCI EXTENSION of the left shoulder...

This is NOT a perfectlt horizontally situated H&S (it's tilted a little downwards), but eyeballing it, it would appear to have the potential to go to:

1350-1150 * 1.618 + 1150 = 1474 (or thereabouts)...

One of the reasons I stopped trading paper equities is that there seemed to be little rhyme or reason for markets hitting levels (save for programmed algos)... One other thing to note on the chart (remember WEEKLY), would be that at this moment, it's really NOT overbought in terms of RSI or other TA tools...

So whatever... I'm not fond of standing in front of freight trains (even if it makes no sense)...

One can be sure of something... If the market DOES go further from here, it's surely going to 'climb a wall of worry' (& many are going to get slaughtered)... I can already see the clowns on CNBS jizzing their pants as it approached , say, 1500 (because then they'll start factoring in new all time highs)...

Good Luck everyone... I'll be over at the coin shop if you need me...


francis_sawyer's picture

oops... that link went to a DOW chart... Gotta toggle over to make an $spx chart...

DavidC's picture

Or, on a REALLY long time scale on the Dow, a MASSIVE triple top...

This on a log scale. Compared to 1929-1930 2008 was NOTHING. There was NO clear out in 2008 only massive injection of money. This is not a liquidity crisis it's a solvency/debt crisis.

My target before all this is done, Dow 3,500 FTSE 1750.


francis_sawyer's picture


Clever... If I'm reading you correctly... your DOW 3,500 number essentialy forms the RIGHT SHOULDER of a tilted H&S (whereby the 1966 high was the left shoulder by extension from the 1929 high)...

Interesting that the 1966 top (curiously around the 1,000 level)... ended up being basically a quadruple top (which lasted until 1982)... So on this go around... Instead... it's a HEAD (the current 'triple top' zone, not the 1,000 level)...


Interesting too... The 1929 TOP (381.17) times 2.618 = 997... The 1966 top was (995)... Close enough for government work...


DavidC's picture

Thanks for your reply.

Nothing clever (I wish it were so!), just comparing to Japan's experience (the US is doing just what they told Japan not to and the Nikkei is about a quarter of where it was at the peak), 1929-1930 (Dow fell below a quarter of its peak) and comparing the actions of the Government/Fed in 1929-1930 to those in 1920 (the forgotten depression, where Government left well alone and it was cleared in 18 months or so).

That, combined with what I feel is 'this time, it IS different' - we've had 50-60 years or credit growth. People are using credit cards to pay for necessities AND RENT (both in the US and here in the UK).

Cleverer people than me have said this is a solvency and debt problem, not liquidity problem.


Hedgetard55's picture

I wonder what the Nikkei numbers would look like priced in gold.

francis_sawyer's picture

That's whole 'nother (interesting) topic... especially considering that it 'seems' (lately) that the yen & yuan might be making an attempt to pair up as a trade weighted balance...

Presumably I would suppose that an 'Asian single currency' would be in the works, but it's way too early to start making predictions like that...

But if one were to start thinking more macro (in terms of trade alliances, dollar hedgemony erasure, Euro pains ~ & even the geopolitical chess game with regards to what seems to be the last ditch effort to SAVE dollar hedgemont in the ME (with Iran)...

Then if you bundle all of that up... It appears to me that GOLD is the new standard for EVERYTHING (& probably has becoming increasingly like that for at least the last decade)...

Sorry if that all sounded random... It's not as crazy of a theory as it 'reads' like...

francis_sawyer's picture


Cool... Thanks for the input...

I was just mentioning it because... oddly... your DOW 3500 number does in fact (or I should say COULD) line up visually as a right shoulder H&S target on a log scale...

Which... IMO, would have to be something that should not be discounted given the duration of timescale...


banksterhater's picture

 -   STO is way overbought:

-    $NYSE is at overbought EXTREME:   >go to next to last chart.

francis_sawyer's picture

overbought ... yes...

divergent... no... (this is where the 'game of chicken' is played)...

GeneMarchbanks's picture

ZIRP 4eva.

Rates will only rise when the creditors say so. The US has lost control of the Fed and monetary policy. It all ends OK though.

Just kidding, get out asap.

rsnoble's picture

Speaking of Japan, who lost 4/5 of it's market value from the highs, I believe that's what the FED is so desperately trying to prevent in the US. According to some charts that have a high probability to play out they put the S&P at 450 in a couple years or so unless something really drastic speeds it up. Currently the FED is doing everything it can to make these charts invalid.  We're going to have a recovery if we like it or not and even if 50% of the population ends up tent city.

Spastica Rex's picture

"We're going to have a recovery if we like it or not and even if 50% of the population ends up tent city."


This is the key. Everybody wants to know what the "collapse" is going to look like and when it's going to happen. It's now and it looks like this; it's just not a collapse for everybody. I think the top 20% or so are set for many generations to come - Bernanke has saved them.

Libertarian777's picture

what did, was it Vikram Pandit, say.. while the music's playing you have to dance...

DavidC's picture

All I can say to this is Japan desperately tried and look where it is.

Their market fell in a period of massive growth for the West - look at US and UK stock markets in the 1990s, no wonder the mom and pop day traders - people with no knowledge of economics or politics - did so well and thought they were so clever. It was almost impossible to lose money trading the stock markets.

Japan now has the burden of an aged population which historically bought JGBs and now HAVE to redeem them to pay for their old age. This is not being replaced by the younger demographic who won't (or can't) invest in JGBs. The pension timebomb is something that NEVER spoken about other than it passing terms.


jerry_theking_lawler's picture

Treasuries Bitchezzz!!

falak pema's picture

Derivatives have this way of going from optional plays to dogma, like God's own word poured in concrete on Mount Sinai. 

The whole seduction of derivatives relative to real economic trade was to hedge. An option that allowed a fixed interest loan to handle floating interest reality or vice versa; a USD transaction to cover a supplier purchase in YEN by currency cover. Real world Commerce and real world financial solution as ASSISTANT. THe game got so big, the apetite of the banker middle men so greedy, that the game of cover became the GAME ITSELF, played by the intermediaries, now KINGS of FINANCE and trade. Those real clients now sidetracked to being shadows of their own shadows, the wise puts. What a reversal of pyramid, the base up in the air the point down on ground, and this equilibrium now ordained NEW stable state. As long as the sun shone on the real world of real economy the shadow world of ponzi finance could multiply exponentially. Its God now Beranke, guaranteeing all and sundry; until the sun went black! 

"Shit, that was NOT supposed to happen. I can't tell my left hand from my right! So whats wrong and what's right??? It's one hellva fright! In fact its panic on the Titanic, but don't tell the band as the music will end!"

AN eclipse? A real eclipse? Wow, all bets are off, the shadows now turned into deep night, we need the fiat fed spot lights to make night feel like day. 

We are in Hollywood and Truffaut IS filming "La nuit Américaine!"


Maestro Bernanke and surrogate at ECB the Draghi of Loch Ness.

disabledvet's picture

This is quite good. There's a good musical score to go along with your all too simple and knowable "collapse of 2008":
of course these "eclipses of the sun" are temporal. if looked at this way the "Bernanke Call" has turned out to be precisely the right thing to do. "Let it pass...but do something while it happens." Japan did nothing. Europe has done precisely the wrong thing. The "point of it all" is to restore final demand and maintain pricing power to the maximum extent possible. There really are only two solutions: ZIRP combined with massive debt monetization or nationalizations of entire industries on a Continental scale. I highly doubt anyone here on this site would have preferred the latter--though i was a big proponent of having our Government actually running the huge business the taxpayer did in fact takeover (AIG, GM, all the banks) for the "people's interest." Instead we got Barak Obama and the entirety of the Democratic Party pounding the table over the "importance of having venture capitalists run the country while we don't really care." And of course now they get to face off against venture capitalist for President.

falak pema's picture

Nationalise it all and stop immediately the fraud; that should have been the formula both in USA and Euroland, when they, Sarko + Euro leaders met in DC under GWB, before O'bammy was sworn in. Dec 2008, was when O'bammy should have told Paulson his Tarp would lead to WS/Industry nationalisation and end, but really END, the spread of world wide scam. Gl-ST and clamp down on derivatives and total transparency. But, but, we can't rewrite history...once the hand has writ. 

Ignorance is bliss's picture

Iraqi dinar RV to the rescue.

ConspiracyTheory's picture

Armageddon delayed.

In the meantime, squeeze all those perma-bears, pessimists, and "now is the greatest time in history to short China" folks. When they all turn their views, it's the time for a real collapse. As long as there is a lot of pessimists, market is gonna keep melting up.

Eclipse89's picture


sell EUR buy USD --> sell USD buy GOLD&SILVER --> sell GOLD&SILVER buy LANDS and become the emperor.


dark pools of soros's picture

you left out buying politicians & military..  emperor you are not 

ozziindaus's picture

Pay your LAND taxes with USD's. Now you're back to where you started. 

onthesquare's picture

Why buy when you can take

Sandmann's picture

Lehman clearly did not need flushing but Jamie Dimon obviously had his deal with Bear and didn't want taxpayers money helping Barclays take over Lehman. Funny how selectively taxpayers' money has been used in the US to leave influential White House-affiliated I-Banks getting as much cream as they need to avoid dieting. Maybe this could be a Constitutional Amendment to give Wall Street the right to appoint Senators rather than simply fund them to contest beauty pageants

wisefool's picture

Many people argue that when the state legislatures appointed senators (pre 17th admendment) it not only more efficiently reflected states rights. But it also encouraged people to seek out positions in the state legislatures improving the quality of entire system.

1913 seems to have been a very interesting year for the USA. Income tax, fed, afformentioned admendment,etc.

They had a good run for 100 years. marked by the most violent loss of life and liberty in history. Maybe we try something different for the next 100 years?

nmewn's picture

"Many people argue that when the state legislatures appointed senators (pre 17th admendment) it not only more efficiently reflected states rights. But it also encouraged people to seek out positions in the state legislatures improving the quality of entire system."

That would be guys like me ;-)

The "entity" of the individual states is not represented now.

The election of federal senators has become just another popularity contest where we have, essentially, two houses of representatives instead of one house of representatives and one senate at the federal level.

From what I can tell, this means on the practical level, when some federal bureacratic buffoon threatens to withold federal highway funds or any other funds confiscated from the people of that state (basically being blackmailed into whatever the feds are trying to achieve) the entity of the state government being abused has no say in the matter.

wisefool's picture

Right. Before I wasted much of my life watching CNBC to learn about "economics" I used to waste alot of my life watching the US political wonk shows.

I find it fascinating that most of the most powerful politicos we have are essentially carpet baggers. Both parties. Hilary Clinton senator NY nee chicago. Dick Cheney Wyoming, nee texas. George Bush, TX nee KennyBunkport maine. Newt "Army brat" military industrial complex spokesman.

Maybe our founding fathers wanted the state legislatures to elect senators for this reason? Not that one is less corrupt than the other, but it would be difficult to buy entire state legislatures, but very easy to buy the popular vote of a state as we have seen....

I wish I wasn't waking up so late in my life. But thank you to zerohedge anyway.

EyeQ's picture

Let's have our correction and then the markets can sort themselves out - I HATE all this government intervention- no way to read the markets properly nowadays

Eclipse89's picture

The american citizens (and all the west world's ones) were born with a kind of terror for anything that lookes like socialism.

But maybe the representation of this in their mind is simply a matrioska invading their lands, because what Ben is doing IS socialism as it's external intervention in a free market economy.

The chinese in that case are much more coherent.

dark pools of soros's picture

it seems to be a slow boil bolshevism facade... where the sheep are demanding 'right to work' over unions so they are programmed to beg to be shit upon....  to 'save the corporations & their jobs' 

the pied piper couldn't follow this act




Spastica Rex's picture

What if there simply isn't enough "stuff" to support a "middle class" consumer lifestyle (as described by media. i.e., SUVs, new homes, constant home remodels, iPads, air travel, vacations, college for the kids, etc.) for a large middle class? I'm not taking a stand on compulsory union membership or anything, just asking a what if.

nmewn's picture

Speaking for myself, its not terror at all, its loathing. And I wouldn't call building ghost cities in China coherent by any stretch.

Prolly jus me tho ;-)

XitSam's picture

I don't see government intervention going away during or after a correction.

dark pools of soros's picture

2 weeks?  you must be cold, come sit by the fire for a while

morning_glory's picture

To infinity and beyond!