This page has been archived and commenting is disabled.

Guest Post: QE3 Mechanism Is Broken

Tyler Durden's picture





 

Submitted by Lance Roberts of StreetTalkLive,

When Ben Bernanke launched QE 2 in 2010 he outlined a third mandate for the Federal Reserve - the boosting of consumer confidence.  He stated that the goal of QE 2 was to boost asset prices in order to spur consumer confidence through the "wealth effect" which should translate into economic growth.   In 2010 he was right, and QE 2 not only boosted asset prices sharply, but kept the economy from slipping into a recessionary spat.  As Friday's speech from the economic summit in "Jackson Hole" draws near - Bernanke should be taking a clue from today's release of consumer confidence in considering his next move.  

The Conference Board released today a report on consumer confidence that was more than just disappointing.  Not only did the consumer confidence index come in at the lowest level since 2011, when the government was last struggling with debt crisis and U.S. ratings downgrade, but the future expectations of the economy plunged 8 full points from 78.4 in July to 70.5.  The three components on future business conditions, employment, and income all deteriorated sharply showing a consumer struggling to make ends meet.  This pessimism, particularly in incomes, poses a risk for retailers going forward and suggests weaker GDP data ahead.

consumer-confidence-082812

It is not just the BEA's consumer confidence index that is showing deterioration as of late.  In a recent post we showed the Rasmussen and Bloomberg polls as well.  The story is the same with confidence sliding markedly in recent months.  I have taken that that analysis one step further and have created a composite index consisting of the BEA Consumer Confidence, the BEA Expectations Index, Bloomberg Consumer Comfort, Rasmussen Consumer Index, University of Michigan Consumer Confidence Index and the State Street Investor Confidence Index.  By combining the varied confidence indexes into a single composite it should give us a broader sense of the overall trends of confidence on the whole.  

The Consumer Confidence Composite, shown below, declined in August to 72.15 from 76.27 in July.  Furthermore, the index deteriorated from its 2012 peak of 79.3 in May.   While the overall index remains above the August 2011 lows of 59.9 the trend has turned decidedly negative.    

consumer-confidence-082812-2

What Does This Have To Do With Bernanke?

Well, just about everything actually.  Take a look at the chart below that compares the consumer confidence composite index with the S&P 500.  You will notice that historically there is a fairly high correlation between asset prices and consumer confidence.  You can see the bump to consumer confidence as asset prices have risen in the past.  Therein also lies the problem for Bernanke on Friday.

Over the past couple of months asset prices have risen markedly and are now poised near the highest levels of year.  In the meantime, consumer confidence has continued to deteriorate, especially in forward expectations,  which shows a divergence that has typically signified weaker markets in the future.  

The problem is that for Bernanke it appears that the transmission mechanism between asset price increases and consumer confidence may be broken.  When Bernanke has implemented balance sheet expansion programs in the past it has been done after asset prices had already taken meaningful hits - not when they are closing in on highs of the year.  What Bernanke is potentially facing is that while an additional QE program might temporarily, and modestly, boost asset prices from current levels it will not necessarily promote consumer confidence leading to an economic lift.  In other words, there could well be a negative return from QE at current levels which is consistent with Bernanke's concerns of diminishing rates of return from each of the previous programs.

Bernanke has consistently asked Congress for help from fiscal policy but to no avail.  The downturn in consumer confidence, in the face of rising asset prices, indicates that consumers may be hitting the wall.  Consumer credit has surged back to pre-recession peaks, not for the purposes of acquiring more "stuff" which would translate into higher levels of economic growth, but rather just to maintain the current standard of living.  So, while Wall Street begs for more stimulus to boost asset prices, and their bonuses, the rest of America appears to be struggling with the effects of the stagnant wages, rising commodity costs, and high unemployment combined with concerns about the fiscal cliff, the impact of ObamaCare, and the future of the economy given rising debts and deficits.

If Bernanke is paying attention it is likely that this Friday will come, and go, without the implementation of QE 3.  More likely we will see the continuation of the ultra-low interest rate policy with a possible extension beyond 2015 and the continuation of the statement that the Fed stands ready with accomodative action if necessary.  In other words, come Friday, it is likely that market participants will be disappointed.  

Of course, for the "stimulus addicted junkies" on Wall Street, a disappointment on Friday will only embolden them to believe that the next "hit" will come in September.  Of course, that has been the same "disappointment/hope" cycle we have witnessed play out over the last few months.  Do not misunderstand me as I do think that QE-3, 4, 5...20 is coming - it will just be when markets are pricing in an economic or systemic event of greater proportions.  The cycle of boom and bust is going to be with us as long as the only policy tools considered by the Central Banks is the use of debt to resolve a debt bubble.  It will eventually fail as 800 years of history have repeatedly proven - the only question will be which Central Bank will be left holding all the debt when it happens?

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 08/28/2012 - 15:00 | Link to Comment vast-dom
vast-dom's picture

The Gold ReportYou've stated before that the price of gold should be above $3,200/ounce (oz) and the price of silver above $200/oz but market manipulation keeps both metals artificially low. Who is manipulating it?

Eric Sprott: I suspect the G6 central banks have a hand in subverting the gold price because as the canary in the coal mine, high gold prices might tip everyone off to the severity of the ongoing financial crisis. I don't think anyone can doubt that we're in the middle of a financial crisis, primarily in the banking system, when month after month one program after another is rolled out to save somebody, whether it's Long-Term Refinancing Operations (LTROs), quantitative easings (QEs), bank bailouts in Spain or rollovers of debt in Greece.

TGR: Are you saying that the gold price manipulation is a new phenomenon?

ES: In the 1960s, the London Gold Pool was trying to suppress the price of gold but lost that battle, and the price rocketed up. My own analysis of the physical supply and demand for gold suggests a dramatic increase in demand over the last 12 years—a 2,500 ton net change at a minimum. This is in the 4,000 ton/year gold market, which hasn't increased in the past 12 years. The supply has basically been static. Yet we have exchange traded funds and central banks buying. You have to ask yourself where all the gold's coming from with all these new sources of demand, because mine supply over that period is negligible.

http://www.theaureport.com/images/pagesRule.png); text-align: left; font-size: 14px; color: #333333; font-family: Tahoma, Geneva, sans-serif; float: left; width: 200px; background-position: 50% 0%; background-repeat: no-repeat no-repeat;">"I can only conclude that acting in concert, the G6 central banks are supplying gold from their reserves by leasing the central bank gold into the gold market."

I can only conclude that acting in concert, the G6 central banks are supplying that gold from their reserves by leasing the central bank gold into the gold market. Of course, they pretend they still own it, because the item on their balance sheet is now called "gold and gold receivables." The receivable is what they've loaned to a bullion bank, but it's actually been sold into the market and consumed and won't be coming back again. To buy it back physically would drive the price absolutely crazy.

That's why I think the price of gold should be considerably higher than it is, and why I believe, much as anyone in the Gold Anti-Trust Action (GATA) organization, that there's been continual pressure from the central banks in cooperation with bullion banks to keep the price down.

TGR: Does the fact that the silver market is so much smaller than the gold market make it easier to manipulate?

ES: I think it's more easily manipulated; it doesn't take as many dollars in the paper silver market because it doesn't trade as many dollars as the gold market would. For example, when silver hit $49.50/oz in the Q2/11, on some days silver traded a billion ounces of paper a day where the mine supply on a yearly basis is 900 million ounces (Moz) and probably the amount available for investment is about 200 Moz.

TGR: Those numbers don't add up.

ES: No, they don't. How can we trade a billion ounces of paper silver on a single day with 200 Moz available for investment for a whole year? I always ask people to think about what the seller was thinking. I'm going to sell a billion ounces of silver today and one-fifth of that is available for investment on a yearly basis. As a result, the paper was determining the price of the physical commodity.

TGR: You recently raised another $200 million (M) for the Sprott Physical Silver Trust with the goal of buying 7 Moz of silver.

ES: We've had a number of issues in that trust. We raised $250M in July, including over-allotment, and $350M back in Q1/12.

TGR: Could that affect supply and demand and therefore manipulate the market?

ES: The silver we buy theoretically stays off the market, so it does have some impact—but had we not bought it someone might have tried to move the price a little lower. Actually, I think the silver price exhibited more stability than it would have otherwise experienced.

TGR: You also operate Sprott Money, a service for buying physical gold and silver. Is that because you view precious metals as a store of value and therefore a hedge against inflation?

ES: I've been a believer in gold and silver for the last 12 years and I guess a disbeliever in paper assets. I'm quite surprised that things—such as currency debasements by central banks getting involved in supporting their bond markets and banking systems—have evolved to make the case for owning gold and silver since 2000 way stronger than anything I might have imagined.

http://www.theaureport.com/images/pagesRule.png); text-align: left; font-size: 14px; color: #333333; font-family: Tahoma, Geneva, sans-serif; float: right; width: 200px; background-position: 50% 0%; background-repeat: no-repeat no-repeat;">"Between the stocks and bullion, I have about 80% of my money in precious metals. "

I basically got into gold because I anticipated a physical shortage, but I didn't expect the headwinds of the level of financial irresponsibility shown at either the fiscal level of governments with all their deficits or at the involvement of the financial markets by way of QEs, LTROs, operation twists and unlimited swap lines. In my mind, all of this ultimately will further debase the currencies, which gives us an even more powerful reason to own gold and silver.

TGR: How does Sprott Money work?

ES: It's basically a mechanism for people to own what I think will be the thing that saves them, which is hard assets. Over the last 12 years, I've been a strong proponent that people should have a sizeable piece of their investments in gold and silver. Sprott Money, operating now for over three years, was set up to make that easier.

TGR: How sizeable should a portion of a portfolio be in physical metals?

ES: That's a great question, and the answer I always give is what I do with my own portfolio. Between the stocks and bullion, I have about 80% of my money in precious metals. I think that's the only sound investment there is. Around the world, on average people have less than 1% of their portfolios in precious metals, and there's a long distance between 1% and 80%. Nevertheless, I certainly believe it should be well north of 1%.

That being said, no way can everyone have 10% of his or her portfolios in gold and silver because there isn't enough gold and silver in the world to do that. There's already a physical shortage of gold and undoubtedly a very tight situation in the silver market. If people and institutions put even 5% of their money into gold and silver, there's no way to accomplish that without driving the prices up dramatically.

TGR: When you suggest investing in the commodities, are you talking about taking delivery of physical bars, bullion and coins? What's the best way?

ES: The best thing is either to take physical delivery and store it somewhere safe or to buy a fund where you know the metal is there. Just looking at the short position in the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV), I can tell you there can't possibly be one ounce of gold for every ounce of certificates that people own because some of the paper was sold short. I have reservations about SPDR Gold Trust and iShares Silver Trust for that reason.

But with other funds, I know the gold and silver are there, so they can give you way more assurance that your precious metal is in safe hands rather than buying something on the commodity exchange, for example. A piece of paper may say you might get it, but what if a force majeure results in too many people claiming what turns out to be not enough physical gold and silver? You have to pick your spots.

TGR: Such as?

ES: Central Fund of Canada is one, as well as Sprott's own physical gold trust or physical silver trust, and funds in other countries that have the physical products, such as GoldMoney, which is actually a competitor of Sprott Money.

TGR: Going back to the manipulation issue, you're cosponsoring the conference, "Navigating the Politicized Economy" with Casey Research. Is currency manipulation really worse than it was 10, 20 or 30 years ago?

ES: As things get more desperate in the economy, the moves politicians make become more desperate. It's because the economy is in such dire shape that the people in charge turn to more and more unconventional methods to make it look as if everything's normal. In reality, everything is quite abnormal.

TGR: You've said that we don't need more regulation to protect us from this manipulation. What can individual investors do to protect themselves from market manipulation?

ES: We have more regulations than you can imagine, but most of them are either not enforced or the problems escape the sight of the regulators, whether it's MF Global or Bernie Madoff. These things went on for years and years, when it would seem that the regulators could identify it. Even when they're tipped off, they can't seem to reconcile it.

Based on experience, a blanket case that more regulation will solve a problem is naive. People have to take matters into their own hands, whether they think they're being ripped off in the stock market because of high-frequency trading or that they're being hurt by rule changes on the commodity exchange. They have to assess their own situations and ask, "What kind of risk am I prepared to take?" The system has failed a lot of people.

That's why I pointblank say gold and silver are the only things you should own. They're the safest things I can possibly recommend. If you own gold and silver and you're 100% certain that it's where you think it is, you should be okay. That's the way I approach it.

TGR: Turning to the equities, in a previous interview you said that when gold prices go up, equities move three times faster. That didn't happen when gold went to $1,900/oz. Was that a fluke, or is the ratio you told us about still relevant?

ES: I think it is. For instance, in 2000 the NYSE Arca Gold BUGS Index (HUI) went as low as 35. Today it's 420, so it's gone up by 1,100%, 2.1 times the increase in the price of gold. At the margin, the increase in the price of gold is all profit, so another sustained rally would dramatically change the profit picture for all these companies. Assume the average miner makes $800/oz. At that rate, a $400/oz increase in the price of gold would push the stock up by 50%.

Looking at that another way, a $400/oz move in the price of gold is today a 25% gain, whereas the miner's profits go up by twice that—an automatic 2:1 in the equities outperforming gold. And because further increases in the gold price would be all profit and because the equity prices have been so incredibly depressed, it's not illogical to assume that the precious metal stocks would outperform gold by a 3:1 ratio.

TGR: What will it take to move this market higher?

ES: I see huge macro changes that in the physical sense alone should cause the price to go up. The biggest thing now is the buying out of China, which has grown by about 600% over the last 12 months. China is buying almost 50 tons of gold a month—600 tons a year of brand-new buying and no increase in supply in a 4,000-ton market. Then bring into the picture central bank buying, which has changed dramatically, particularly from 2010 to 2011. It increased by about 800 tons, again with no increase in supply. You have to wonder where all this gold is coming from.

http://www.theaureport.com/images/pagesRule.png); text-align: left; font-size: 14px; color: #333333; font-family: Tahoma, Geneva, sans-serif; float: left; width: 200px; background-position: 50% 0%; background-repeat: no-repeat no-repeat;">"In this environment, the well-funded company that has ongoing operations should do just perfectly."

The central bank buying includes obvious moves by some non-G6 countries, not only China but also Turkey, Mexico, Kazakhstan and Russia. Even South Korea has been a recent buyer. These non-G6 central banks see what's going on in the G6 and have decided to step up their allocations to gold. I think ultimately this will have a dramatic impact on the price of physical gold.

Gold equities will go up when the price of gold goes up. And, as I've said, the G6 central banks are already surreptitiously supplying a considerable shortfall in the physical gold market.

I can assure you that based on Frank Veneroso's work, which got me interested in gold back in 1998, there was already a shortage of gold then. The central banks had been selling it for 15 or so years. Combining that with what's been happening in the last 12 years, not much gold can be left in those vaults. Sooner or later, the rubber will meet the road in terms of the physical market for gold.

TGR: And that will increase demand, which will in turn increase equity prices?

ES: We don't even need to increase demand. We need the central banks to stop selling gold surreptitiously, but that's not going to happen.

TGR: John Doody recently told us that the coming bottom of the market will offer a great opportunity to buy some great companies at a discount. Do you agree? If so, how do you determine what is a great company hit unfairly by the market and what's a company that just may not survive to see the upside?

ES: I totally agree, because all precious metal equities have been mauled. I can make a very strong case for companies that are trading at incredibly low cash flow multiples in what is almost a negative interest rate environment.

The fundamentals have improved dramatically for a lot of these companies because their stocks have gone down. That would argue that the upside is quite stunning, particularly if you factor in increases in the prices of precious metals along the way.

TGR: How can you tell which companies will be able to make it to the upside? It's been a tough market for raising capital and staying in business.

ES: Producers shouldn't have a problem because most of them are making money selling gold. They shouldn't have a problem surviving as long as they don't overexpand and stretch capital needs if the market won't supply. The very difficult time in capital markets isn't just in precious metals, but in all capital markets. The IPO market has been badly hurt, and the average investor is taking money out of the stock market, so it's not as though mutual funds have more money to throw into new equities.

In this environment, the well-funded company that has ongoing operations should do just perfectly. And, of course, some of these smaller to middle size companies are trading at probably lower multiples relative to the gold price than ever. I see company after company saying that they'll be trading at four times cash flow next year or two years from now. Where else will investors get that in a zero interest rate world? It's almost impossible.

The problem is the price of gold hasn't rallied. (Editor's Note: this interview was conducted before the gold rally of the past week to 1672.) We need that to give people some comfort that we're not going to $1,200/oz but to $2,000/oz.

TGR: You've been in the eye of a mergers and acquisitions flurry as nine recent takeover bids have involved stocks in your portfolio, including a controversial one with U.S. Silver Corp. (USA:TSX). Are the premiums as good as they would've been if these companies had other options, such as access to capital? Or are these fire sales?

ES: I'd call them all fire sales. Companies are up against the wall, and maybe their production hasn't come on as well as it should have. Typically, it's someone being opportune. Obviously, the price of precious metals hasn't helped, because everyone is worried. I think the average analyst is suggesting the price of gold will be $1,275/oz in a few years.

I don't believe that for one second, but that's what the analysts conventionally believe, so people think it will get worse before it gets better. I happen to be of the opposite view, that it will get better going forward than it has been in the last little while. Gold was up every year for the last 11 years. It's up again this year and the year's not over. As we get toward the end of the year, I think if we can push back toward the old highs, the valuations given to all of the precious metal producers will be dramatically different.

TGR: Finally, What is the best piece of investing advice you have ever received?

ES: I think the best piece of advice I have received was always try to buy a company with a low price-to-earnings multiple or a low price-to-cash-flow multiple, particularly one that's a little out of favor because ultimately if it's sustainable, it will attain the valuation that's appropriate in the market. That's why we typically look at small to midsize companies that are under-followed where we can see opportunities that maybe others haven't. I think that's the place where people should focus.

TGR: And any last bits of advice you would like to share with our readers?

ES: The biggest thing is they should fear the financial system. It's very, very volatile. We see what's happening on a day-to-day basis. It's staggering the things the central planners have to do to hold it together. I think people have to push further and further into the precious metals area. It's the one thing that will survive the financial fiasco that we're in. The safest thing is to own gold and silver, and don't buy some paper saying you own it unless you know the people behind it are trustworthy.

TGR: Thank you so much for taking the time to talk to us today.

Tue, 08/28/2012 - 15:09 | Link to Comment francis_sawyer
francis_sawyer's picture

 'Fight Club' rule addition:

~~~

Never start a comment thread with a wall of text...

Tue, 08/28/2012 - 18:12 | Link to Comment TruthInSunshine
TruthInSunshine's picture

When there's any doubt, there is no doubt.

The Bernank doesn't care if he's broken all markets & normal market functions. He's in the process of trying to max out new (or old re-new) insane bubbles he's created (equities, bonds/credit, etc) in order to try and kick the can.

 

“Like gold, U.S. dollars have value only to the extent they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or today, it’s electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is the equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

---Ben Bernanke, Nov 21, 2002


The Bernank hasn't stopped QEeeesing (not that this is going to forever prop up equity markets- it won't*), and anyone that expects him to stop is firmly rejecting the concrete proof of the intentions of the man who hath broken all markets as evidenced by his track record of inclinations towards massively & radically intervening with anything remotely approximating free market clearing functions & market-based economic homeostasis.

The Bernank will give Wall Street, the Banksters & the other wards of the state/parasites on the taxpayers (present & future) what they want, each and every time - whether what they want will be beneficial or ultimately toxic to them**.

To deny that The Bernank will print more robustly is to deny one's own existence.  Watch a lit candle melt & try to deny your own existence, by any methodology or means....

...for even if it's all a mirage, your perceptions of what you perceive, however flawed or accurate...

Cogito ergo sum.

Je pense donc je suis.

Le Bernank imprime donc il est.

 

 

NOW, HERE IS THE CORE PROBLEM WITH THE BERNANK'S REASONING (and that of any other fractional reserve 'central' bank controlling or heavily influencing the volume of fiat created): 

Fractional reserve banking and a reliance on inducing inflation & inflationary expectations via the zero cost basis electronic printer or prolific talk of its use is inevitably the ultimate paradox in any economy where the largest component of aggregate demand for goods and services isn't (yet, at least) the state itself.

With each successive wave of printing incrementally larger batches of fiat, thus stripping away more purchasing power of circulating fiat, there comes a point in time where even many of the original intended beneficiaries of said plan (i.e. Wall Street, the Banksters & the other wards of the state/parasites on the taxpayers, present & future) have their pecuniary interests hurt by its furtherance (there are plans deep in implementation by actors such as Goldman Sachs to transform their business model for this very reason).

That point arrives when the urge to save & deleverage so deeply affects the component of the society that is the catalyst for the largest respective % of purchases made and total aggregrate demand, that "consumers" (whether individuals or entities) save instead of consume additional units for whatever reason (it could be future uncertainty, an economy that is so mal-aligned & distorted [true price discovery doesn't exist; supply/demand curve no longer normally functions; shadow debt/credit, inventory & other asset/liability classes are so opaque as to prevent rational investing & consumption decisions]), and income flow becomes impaired.

At this point, inflationary policies become toxic & poisonous and thwart increased consumption, and actually prompt further deleveraging and saving, very quickly.

 

**By the way, the "virtuous circle" equity ponzi "wealth effect" that the Bernank has set as a priority is truly perilous long and even intermediate term, as it's nothing but another intentionally inflated bubble that allows phantom wealth to appear 'on the books,' but will be short lived, which will induce yet another bursting of yet another bubble, and increase the already massive mistrust of what's already perceived as an equity scam. It's possibly the worst "wealth transmission" mechanism ever created (assuming one even subscribes to a single grain of wisdom in having an entity such as the Fed intentionally establish "wealth transfer mechanisms") in terms of benefitting the economy long term, or benefitting any significant % of the population (not to mention that equity markets are reeling under a 14 year real -40% loss tally, that the market capitalization of equity markets is a dreadful barometer of economic health, and that equity market valuation is, in The Bernank's own parlance, truly "transitory").

Tue, 08/28/2012 - 19:16 | Link to Comment SheepDog-One
SheepDog-One's picture

I dont believe thats what he's actually doing, he's monetizing the debt straight up 1 mission.....however if he really was trying to 're-blow bubbles' then we are in store for markets to blow up like a thermo nuke 1 morning soon.

Tue, 08/28/2012 - 15:22 | Link to Comment fireangelmaverick
fireangelmaverick's picture

"QE3 Mechanism is Broken."

Obama ..."Bernanke Didn't Break that!"

 

Tue, 08/28/2012 - 15:28 | Link to Comment Dr. Engali
Dr. Engali's picture

You couldn't just post a link? Your post is longer than the original article.

Tue, 08/28/2012 - 15:29 | Link to Comment Bay of Pigs
Bay of Pigs's picture

"the G6 central banks are supplying that gold from their reserves by leasing the central bank gold into the gold market. Of course, they pretend they still own it, because the item on their balance sheet is now called "gold and gold receivables." The receivable is what they've loaned to a bullion bank, but it's actually been sold into the market and consumed and won't be coming back again. To buy it back physically would drive the price absolutely crazy."

That particular quote (emphasis mine), plus a link would have been sufficient to get the point across.

Tue, 08/28/2012 - 15:02 | Link to Comment fonzannoon
fonzannoon's picture

maybe stupid people finally realized that printing money and giving it to banks does not do much to help stupid people

Tue, 08/28/2012 - 15:06 | Link to Comment Michael
Michael's picture
Video: Paul supporters chant as Ron Paul enters RNC convention

http://www.dailypaul.com/251571/video-paul-supporters-chant-as-ron-paul-enters-rnc-convention

Tue, 08/28/2012 - 15:43 | Link to Comment CrockettAlmanac.com
CrockettAlmanac.com's picture

 

Stand up. Your father's passing.

 

http://www.youtube.com/watch?v=q7CX_5D6y6E

Tue, 08/28/2012 - 15:08 | Link to Comment negative rates
negative rates's picture

Oh no, money flo bot, broken, heaven forbid!

Tue, 08/28/2012 - 15:10 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Hey  Ben, how about trying this on for size.

Since oil scarcity is inexorably going to shrink all economic activity, that means the economy will be smaller and require less money supply -- which will shrink itself as asset prices fall.

How about you say so, and say you've decided to do nothing so as to avoid worsening the inevitable pain.

Tue, 08/28/2012 - 15:11 | Link to Comment asteroids
asteroids's picture

You can't have a "wealth effect" with 50million (and climbing) on food stamps. It's stupid to think so.

Tue, 08/28/2012 - 15:14 | Link to Comment Xibalba
Xibalba's picture

Bernanke has printed enough money to pay everyone's home off in full.  Yet the bankers stole it all.  That is a wealth effect...just in reverse.  

Tue, 08/28/2012 - 17:19 | Link to Comment donsluck
donsluck's picture

It was not stolen, it was given to them by an un-representative Congress. Do not vote Dem or Rep.

Tue, 08/28/2012 - 17:50 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

Who bought Congress?  Let's refrain from not calling it theft, just because the transmission mechanism optically followed the law.

Tue, 08/28/2012 - 16:32 | Link to Comment monad
monad's picture

"bungee jumping accident effect"

Tue, 08/28/2012 - 15:12 | Link to Comment Hype Alert
Hype Alert's picture

People know the market's rise isn't based on fundamentals, therefore it's not real and subject to "external" forces.  If someone can make it go up, they can also control when it comes down.  This does not inspire confidence. 
Everybody I've talked to about the market believes it rigged and what the Fed has done is just more evidence.  It's having the opposite effect.

Tue, 08/28/2012 - 15:16 | Link to Comment Let The Wurlitz...
Let The Wurlitzer Play's picture

The QE transmission mechanism NEVER worked in relation to the average person.  It certainly has not had any macro stimulative effect.  The people that made money from QE had money prior to QE, now they just have alot more.

 

Tue, 08/28/2012 - 15:38 | Link to Comment AlaricBalth
AlaricBalth's picture

Here is where previous QE money went. Reserve Balances at the Fed. It will not be any different this time.
http://m.research.stlouisfed.org/fred/series.php?sid=WRESBAL

Tue, 08/28/2012 - 15:21 | Link to Comment williambanzai7
williambanzai7's picture

FEDERAL RESERVE HIGHWAY

Wed, 08/29/2012 - 00:08 | Link to Comment LMAOLORI
Tue, 08/28/2012 - 15:21 | Link to Comment giorgioorwell
giorgioorwell's picture

The problem with ZH now is that everything has already been said...this endless Q3, Q4, etc analysis and charting is mindblowingly boring and obvious.

Wake me up when things actuallly start to unravel, because there really isn't anything else to say until then.

Tue, 08/28/2012 - 16:48 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Almost.  The problem is the analysis is pointless because government can change all conditions with the wave of a hand.

Remember the Greek PSI?  All that debt that was a concrete entity, expunged.  Expunged without recourse.

So the analyses are useless and everything has been said because nothing worth saying can be said in an environment like this -- besides one thing.

Sell everything.  Buy farmland.  Nothing else has value.

Tue, 08/28/2012 - 15:25 | Link to Comment God Bless The V...
God Bless The Virtuous's picture

Bernanke is a scumbucket and to think that he is even remotely concerned with consumer confidence if bullshit!

Bubble Blowin' Ben and his QE stun gun do nothing for the working man / woman every time he talks shit about what the fed is going to do!

He so full of shit his eyes are brown!

There is nothing short of RAISING rates and giving the SAVERS a little bump in their non existent yield! This country is under attack from the progressive / communist policies of the most corrupt administration in the republic's history!

Bernanke and his mentor Alan,"I was not WRONG my models were" Greenspan are part of this attack on our nation and the fact that we have a scumbag (who should be in jail for tax avoidance), running the treasury is all you need to know about the ETHIC'S, or lack thereof of this gang of hoar's!

Obama is and was raised by a communist, Frank Marshal Davis! His fate was sealed and all you need to do is read his own words! We are going to follow Europe down the crapper if we don't throw him and his BRAIN Valerie Jarrett out on their ears!

Yes, that EAR thing was meant to annoy the holy one! Seem's old Barry does have a soft white underbelly,

Those fucking DUMBO EARS!

Sorry for the crass words but I have had it up to here with this shit from Bernanke, Geithner and DUMBO!

God save the republic!

Romney in a landslide!

Or socialism for all!

Let us not fail this challenge because we chose to sit down!

Tue, 08/28/2012 - 15:42 | Link to Comment jomama
jomama's picture

you had me until you failed to see that Romney would be no better (and when you tried peddling your Godder bullshit).

Do you seriously think any of these schmucks WANT to be president? 

They are installed, plain and simple.

Tue, 08/28/2012 - 15:32 | Link to Comment Dr. Engali
Dr. Engali's picture

How can you have a wealth effect when nobody has any wealth? All the citizens have mountains of debt with no way of getting out from under the rising rates.The banks get free money but then jack up the rates on people's cards to 30%. The few people who have wealth are pulling itout trying to service the debt and keep their head above water.

Tue, 08/28/2012 - 15:33 | Link to Comment Bartanist
Bartanist's picture

Now raising stock prices only confirms evidence of corruption and an uncontrollable banking system. The markets, at best, appear as an unfair and arbitrary system designed by criminal bankers for criminal bankers. There is no capital formation and value creation. There is only wealth transfer.

This yields the exact opposite effect that the Fed would want by pumping up market prices. If it cannot be trusted then it must be shunned. The higher the market goes, the more people fear it.

Tue, 08/28/2012 - 15:43 | Link to Comment khakuda
khakuda's picture

Maybe it's just me, but when you tell me you are going to print lots of money to make the money I have and earn worth less and less, I'm not going to be too confident about my future.

Tue, 08/28/2012 - 15:48 | Link to Comment MrBoompi
MrBoompi's picture

Since when does QE have to result in consumer confidence?  When the problem is undercapitalized and insolvent banks, the last thing on Bernanke's mind is the consumer.  We still get treated with the respect we deserve from the Fed, which is basically just lip service.

Tue, 08/28/2012 - 15:51 | Link to Comment hannah
hannah's picture

consumer credit has gone up because of car loans and student loans....all gov backed. consumers have no access to credit. so the whole consumers did better for awhile is bs.

'kept the economy from slipping into recession'...WTF by whose measure. bs fake gov accounting/spending pushed manipulated numbers up but that didnt help the middleclass.

lance needs to learn how gov numbers are calculated...qe did absolutely nothing for the middleclass. it was just free money to the elite banker group.

Tue, 08/28/2012 - 15:53 | Link to Comment SheepDog-One
SheepDog-One's picture

The QE mechanism is BROKEN? DANG! And just when every big brain out there declared QE to infinity was in the bag? DAMMIT!!

Tue, 08/28/2012 - 15:58 | Link to Comment tuttisaluti
tuttisaluti's picture

Every country want do devaluate their currency. But if everybody does the same, against what will you devaluate? Rigth, they all should do it against Gold and Silver......

Tue, 08/28/2012 - 15:58 | Link to Comment tuttisaluti
tuttisaluti's picture

Every country want do devaluate their currency. But if everybody does the same, against what will you devaluate? Rigth, they all should do it against Gold and Silver......

Tue, 08/28/2012 - 16:32 | Link to Comment Tombstone
Tombstone's picture

Uncle Benny is really beginning to piss me off.  I am now debt free and in a spending freeze.  I have heard that the manufacturing sector is the only true growth sector of this invisible recovery and that is an area that I am most involved with for work.  Yet, since 2008, the opportunity to make good money has been evaporating.  I must conclude that Benny has no clue as to what to do.  The boneheads in Congress drive up the debt forcing the economy to crumble and Benny to pretend to fix it all.  I seriously doubt anyone in the FED or political community has the balls to really fix the problem.  I guess the joke's on us hard working stiffs.

Tue, 08/28/2012 - 16:52 | Link to Comment Westcoastliberal
Westcoastliberal's picture

To put it succinctly, as 99% of Americans get poorer and poorer, what happens on Wall St. means less and less.  Most have already cashed-out of their 401k's and IRA's and are living on credit cards and disability checks.  Fuck Wall St. & Fuck Bernanke!

Tue, 08/28/2012 - 17:08 | Link to Comment SwingForce
SwingForce's picture

Dudes, gold has the same confidence problem as any other asset, except farmland. Wait, who hijacked this thread? I was gonna say that there should be a prerequisite before posting any comment about The Fed- READ CREATURE from Jekyll Island. And if there's any questions? Read BAILOUT by Neil Barofsky. It should be abuntantly clear, we US citizens are getting hosed bigtime. Not even worth a discussion, just accept it. Let Europe implode, we have far bigger problems here in US. The only people who care about Europe are, well, Europeans, but beyond that, are BANKSTERZ. Fuck the banksterz, US or EU or otherwise, fuckem' all.

Tue, 08/28/2012 - 18:55 | Link to Comment economicmorphine
economicmorphine's picture

Uh Dude, most of us read Jekyll over a decade ago.  As for your contention that Europe doesn't matter, I'd agree except that everybody is loaded up on everbody else's toxic sludge and if one goes under, oh hell, why even bother trying to explain it. 

Tue, 08/28/2012 - 17:25 | Link to Comment ella
ella's picture

Doesn't know that the wealth effect died when the housing ATM machine went broke?  

Tue, 08/28/2012 - 17:30 | Link to Comment SwingForce
SwingForce's picture

Duh, and then The Russ 2000 doubled??? What's wrong with you.

Tue, 08/28/2012 - 18:08 | Link to Comment Bloodstock
Bloodstock's picture

Hey Bankers! We DON'T NEED YOU. WE DON'T WANT YOU!. WE'LL BE JUST FINE,,,scratch that, we'll be better off without you. Thank you for your rapid decline. Geez, you had it made and you blew it! Fools.

Tue, 08/28/2012 - 18:29 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

Notice how none of Fed's so-called mandates are  measurable in any sort of factual way.

The 2% inflation mandate is not measureable in a factual way.  Inflation statistics are heavily manipulated.  We have about 15% inflation these days, but it they report what the Fed wants to see, around 2%. 

Same thing with the full employment mandate.  Unemployment statistics are grossly manipulated to make 23% true umemployment look like 8%.

Now this third alleged mandate, boosting consumer confidence.  What a joke.  Consumer confidence is a guess at best.  There's no way to say factually how consumer confidence is running at any point time.

None of these "mandates" are measurable in any sort of factual way.  Bernanke can get up there and say "we're meeting our mandate(s)" regardless of what he's doing or not doing.

The ONLY mandate Fed should have is maintain the value of the currency.  And yes it can be measured in a factual way against gold, other currencies, etc.

But that's a mandate Fed will never claim because they have completely failed at maintaining the value of the currency, having lost 99% of it's original value.

Ok, so what's the Fed's REAL mandate? 

That's easy.  Loot the economy and the American people.  Transfer the nation's wealth to Wall Street bankers.  Either of those would be correct.

Tue, 08/28/2012 - 19:18 | Link to Comment SheepDog-One
SheepDog-One's picture

Fed's 'dual mandate'-

Mandate 1) Bail out central banksters no matter what.

Mandate 2) Fuck everyone else.

Tue, 08/28/2012 - 18:52 | Link to Comment economicmorphine
economicmorphine's picture

Dear Mr. Bernanke,

It ain't workin', shit for brains.

Cheers,
Morph 

Tue, 08/28/2012 - 18:56 | Link to Comment q99x2
q99x2's picture

Trickle me down some homey.

Tue, 08/28/2012 - 19:19 | Link to Comment SheepDog-One
SheepDog-One's picture

3rd mandate- 'Restore consumer confidence'...BWAAAA HA HA HA HA HA HA HAAAAAAAAAAA!!!!!

Wed, 08/29/2012 - 04:57 | Link to Comment Super Marco
Super Marco's picture

Good article.

Do NOT follow this link or you will be banned from the site!