Guest Post: Why Is The Fed Not Printing Like Crazy?

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Submitted by John Aziz of Azizonomics

Guest Post: Why Is The Fed Not Printing Like Crazy?

I try to read all sides of the economics blogosphere, and try and grasp the ideas of even those who I would seem to radically disagree with.

One thing that the anti-Fed side of the economics blogosphere seems to not fully appreciate is the depth of disappointment with Ben Bernanke from the pro-Fed side. For every anti-Fed post bemoaning Bernanke’s money printing, there is a pro-Fed post bemoaning Bernanke for not printing enough. Bernanke, it seems, is tied to everybody’s whipping post.

And in fairness to the pro-Fed side, the data shows that the Fed is not printing anywhere near as much as its own self-imposed interpretation of its mandate demands. (Of course, I fundamentally disagree that price stability should be interpreted as consistent inflation, but that is an argument for another day).

Scott Sumner notes:

Recall that the Fed tries to keep inflation close to 2.0% and unemployment close to about 5.6% (the Fed’s current estimate of the natural rate.)  One implication of the dual mandate is that they should try to generate above 2% inflation during periods of high unemployment, and below 2% during periods of low unemployment.

 

In July 2008 unemployment rose above 5.6%, and it’s averaged nearly 9% over the past 46 months.  So the Fed’s mandate calls for slightly higher than 2% inflation during this 46 month slump.  Last month I reported that the headline CPI had risen 4.6% in the 45 months since July 2008.  Now we have the May data, and the headline CPI has gone up 4.3% in the 46 months since July 2008.  So the annual inflation rate over that nearly 4 year period has fallen from a bit over 1.2%, to 1.1%.

Raw data:

Note that downward slope in inflation into 2012?

That’s the Fed not doing QE3 when everyone (especially gold prices) expected them to, and when their own self-imposed interpretation of their mandate calls for them to inflate more. And nobody can say that the Fed is out of bullets; central banks are never out of bullets — there was a time when a central bank was limited to the number of zeroes it could fit on a banknote, but in the era of digital currency, even that limit has been removed.

Here’s the younger Bernanke’s views on the subject:

Franklin D. Roosevelt was elected President of the United States in 1932 with the mandate to get the country out of the Depression. In the end, the most effective actions he took were the same that Japan needs to take — namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing. But Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and to experiment— in short, to do whatever was necessary to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and to do what needed to be done. Japan is not in a Great Depression by any means, but its economy has operated below potential for nearly a decade. Nor is it by any means clear that recovery is imminent. Policy options exist that could greatly reduce these losses. Why isn’t more happening?

 

To this outsider, at least, Japanese monetary policy seems paralyzed, with a paralysis that is largely self-induced. Most striking is the apparent unwillingness of the monetary authorities to experiment, to try anything that isn’t absolutely guaranteed to work. Perhaps it’s time for some Rooseveltian resolve in Japan.

And here’s Paul Krugman pulling a Bernanke on Bernanke:

Bernanke was and is a fine economist. More than that, before joining the Fed, he wrote extensively, in academic studies of both the Great Depression and modern Japan, about the exact problems he would confront at the end of 2008. He argued forcefully for an aggressive response, castigating the Bank of Japan, the Fed’s counterpart, for its passivity.

 

Presumably, the Fed under his leadership would be different. 

 

Instead, while the Fed went to great lengths to rescue the financial system, it has done far less to rescue workers. The U.S. economy remains deeply depressed, with long-term unemployment in particular still disastrously high, a point Bernanke himself has recently emphasized. Yet the Fed isn’t taking strong action to rectify the situation.

 

It really makes no sense — except in terms of politics. I really believe that we have reached a point where the Fed is afraid to do its job, for fear of being accused of helping Obama.

I am fairly certain the answer to why Bernanke isn’t increasing inflation when his former self and former colleagues say he should be is actually nothing to do with domestic politics, and everything to do with international politics.

Most of the pro-Fed blogosphere seems to live in denial of the fact that America is massively in debt to external creditors — all of whom are frustrated at getting near-zero yields (they can’t just flip bonds to the Fed balance sheet like the hedge funds) — and their views matter, very simply because the reality of China and other creditors ceasing to buy debt would be untenable.

Why else would the Treasury have thrown a carrot by upgrading the Chinese government to primary dealer status (the first such deal in history), cutting Wall Street’s bond flippers out of the deal?

As John Huntsman (in his days as ambassador to China) reported in a cable back to Washington, China is keen to stop buying low-yield treasuries and start buying other assets, but the US is desperately pushing China back toward treasuries:

The Shanghai-based Shanghai Media Group (SMG) publication, China Business News:

“The United States provoked a trade war again by imposing high anti-dumping duties on Chinese-made gift boxes and packaging ribbon. China has become the biggest victim of the U.S.’s abusive implementation of trade remedy measures. 

 

The United States no longer sits still; it frequently uses evil tricks to force China to buy U.S. bonds.

 

A crucial move for the U.S. is to shift its crisis to other countries – by coercing China to buy U.S. treasury bonds with foreign exchange reserves and doing everything possible to prevent China’s foreign reserve from buying gold.

 

Today when the United States is determined to beggar thy neighbor, shifting its crisis to China, the Chinese must be very clear what the key to victory is.  It is by no means to use new foreign exchange reserves to buy U.S. Treasury bonds.  The issues of Taiwan, Tibet, Xinjiang, trade and so on are all false tricks, while forcing China to buy U.S. bonds is the U.S.’s real intention.

And that, in a nutshell, is why Bernanke is not printing nearly as much as Krugman wishes. In my view only a brutal 2008-style collapse can bring on the kind of printing — QE3, NGDP targeting and beyond — that the pro-Fed blogosphere wishes to see, because it is only under those circumstances that China and other creditors will happily support it.

To a heavily-indebted nation, creditors have big leverage on monetary policy.

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Sat, 07/21/2012 - 11:23 | 2638781 q99x2
q99x2's picture

Could have to do with high food prices sparking revolution.

Sat, 07/21/2012 - 11:30 | 2638793 otto skorzeny
otto skorzeny's picture

it seems God is trying to stymie The Bernank. food prices are gonna skyrocket plus crude is stubbornly staying at around $90 a barrel which doesn't help.

Sat, 07/21/2012 - 11:43 | 2638819 flacon
flacon's picture

Every one deserves a steak dinner. CTRL-P the link below and enjoy - or simply enjoy it right on your monitor from the comfort of your own home! Those who stand for delivery will be prosecuted as speculators!

http://www.stag-berlin.com/images/katakt/Steak%20Dinner%20-%20Stag%20Ber...

 

Sat, 07/21/2012 - 12:07 | 2638877 Spastica Rex
Spastica Rex's picture

You know, I know this steak doesn't exist. I know that when I put it in my mouth, the Matrix is telling my brain that it is juicy and delicious. After nine years, you know what I realize? Ignorance is bliss.

Sat, 07/21/2012 - 12:31 | 2638912 LowProfile
LowProfile's picture

 

The issues of Taiwan, Tibet, Xinjiang, trade and so on are all false tricks, while forcing China to buy U.S. bonds is the U.S.’s real intention.

Someone explain to me how exactly the US can force China to buy UST bonds?

Because I don't see it...

Sat, 07/21/2012 - 13:14 | 2638918 engineertheeconomy
engineertheeconomy's picture

People lie...

The United States and China are one and the same, they make it look like they are in conflict when they are actually in complete agreement as to how they will divide their plunder

With the press of a button they printed gazillions and already purchased everything

Think about the implications of that

They control every piece of information you recieve

They fabricate your entire reality

You think what they want you to think

Ben Bernanke is following his instructions to lie about the fact that he is printing Quadrillions and Quadrillions of Dollars

Just because you can't see it does not mean that they are not very clever at hiding it

What would you buy if you had Quadrillions and Quadrillions of Dollars, and what would the people you bought it from be left holding?

Thats right

The transfer of wealth continues

Along with your daily demotion

Do you know why you can't find "Rate of Usury to Foreclosure Ratio" Charts on the internet?

Or how about "Usury is Unpayable"

Maybe they control the internet

 You think?

Sat, 07/21/2012 - 15:53 | 2639140 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

If the Bernank did turn on the taps and wrote an automatic Cntl-P program, it would be admitting failure. People would figure out that our leaders failed us. These types of arrogant supposed intellectuals are never wrong (at least in their deluded heads) Printing like Zimbabwe will only occur during a real crisis and everything is imploding quickly. Until then, we are going to get gradual printing (it really is not printing but debt generation) until they are forced to.

Sat, 07/21/2012 - 18:46 | 2639378 caconhma
caconhma's picture

WOW! How long will yellow-stupid people buy useless American paper like US Treasuries or exchange their goods and services for US$$$?

It is obvious that America does everything in its power to subjugate Red China. The objectives of all these endless wars are to encircle China and deny China the access to natural recourses and technology. An a top of it, America is trying to provoke a confrontation economic & military between China and India as well as between China and the rest of Asia including Vietnam, Philippines, Indonesia, etc.,

Granted Japanese are not much smarter.

PS

It cost lots of money to conduct the Libyan and Syria military campaigns. After all, Saudis and Qatar just cannot print US$$. These stupid Chinese were/are also paying for the American takeover of Libya throwing out Chinese companies as well as 40,000 Chinese out of Libya.

This fucking world went absolutely crazy.

 

Sat, 07/21/2012 - 22:13 | 2639647 Bringin It
Bringin It's picture

Undeniably true.  They were paying America and Nato to destroy their Lybian investment.  This is beyond the Milo Mindbender/ Catch 22 fantasy.

China was trumpeting it's support for the Euro.  How many Euros were expended over the lybian desert?

Sun, 07/22/2012 - 00:39 | 2639795 LowProfile
LowProfile's picture

 

People lie...

Rhetorical question, but thanks for the spot on rant, engineertheeconomy.

Sun, 07/22/2012 - 00:52 | 2639811 bankruptcylawyer
bankruptcylawyer's picture

well, war actually doesn happen with enough frequency that you can both be right and still agree to the idea that the chinese and american military can also cooperate to have war until one of them 'wins' at some point. 

 

read the japanese chinese 'peace treaty' negotiated multiple times since world war ii . if you read the language , it is more than clear that the treaty is really designed to allow war to happen when convenient. it is as if both parties agreed that they would just fight later, when the need to fight reared its ugly head once again. 

 

Sun, 07/22/2012 - 03:16 | 2639882 All Risk No Reward
All Risk No Reward's picture

All Bernanke does is lie.

Scott Sumner and the author of this article that quotes him are either useful idiots or liars as well.

Let me be crystal clear:  THERE IS NO DUAL MANDATE.  IT DOESN'T EXIST.  It's all a propaganda lie.

Read Section 2A of the Federal Reserve Act yourself.  The mandate is singular - keep credit and monetary aggregates commensurate with the long term productive potential.  Of course, they criminally broke their mandate and needed some cover - so they went Orwellian and claimed the expected resultf of following the mandate were the mandate itself.

Proof beyond any and all doubt right here:

http://www.keepandshare.com/doc/3324744/wmdebt-graph-3-79k?tr=77

Spread the word...

Sat, 07/21/2012 - 12:42 | 2638930 zaphod
zaphod's picture

Comments like "focing to buy" are just typical whinning from over other because they want to have their cake and eat it too. China buys a ton of treasuries so they can keep the exchange rate at a level that keeps exports up. But that admits to manipulation and exposes the myth of their economy.

As for why Ben is not printing, he knows that the next $1-2T of funny money will start to have a serious effect on prices, so he won't do it until everyone begs for it. i.e. during the next major crash. But yes, he will print then.

Sat, 07/21/2012 - 14:21 | 2639032 engineertheeconomy
engineertheeconomy's picture

After the Great Depression (caused by the Bankers) we were able to come out of it because the people still owned some of the Land and some of the Gold

The depression that we are all currently in Globally here and now in 2012 (also caused by the Bankers) is way, way differrent

It's much, MUCH worse

Thats why it is being refered to by Hillary as the Long Depression,

she calls it Planned Future Generations of Slavery by design of the few Elite

and yes, their long range target is to eliminate the majority of us useless eaters

they have machines and robots to do  practically all of their dirty work now

and technology is increasing at an exponential rate

think about it

 

Sun, 07/22/2012 - 04:26 | 2639895 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I hate to poke holes in your hypothesis but there was something called the Dust Bowl that rendered most farmland useless (most of which was farmed by tenents).  Furthermore, the peoples gold was taken by force by FDR's agents then devalued.  It was blatant theft on a grand scale.  It was illegal to own gold until 1971.

Caused by the bankers?  I say maybe 50% of the problem.  But none of this would have happened without the government's full compliance.  There are plenty of laws on the books and regulatory agencies that had the full power to stop the banks and prosecute the criminals.  However, none of this happened because the USG, being the biggest debt junky on the planet, needs the bankers just as much as the bankers need the USG.  Until we address the issue of moral hazard, largely caused by USG involvment in the finance industry we will continue to have more of the same.  The worse thing you could do to the banks is shut down all USG loan guarantee programs and close the FDIC.  Believe me, the banks would change risk and leverage levels over night.

Sat, 07/21/2012 - 23:51 | 2639747 Muppet of the U...
Muppet of the Universe's picture

Very true.  Note when QE1 - 2 - silent 3 all came out. 

BBKing aka woppa junyah saved the market from bearitory.

People talking about QE for the hard economy like states and towns?  Look at Chicago.  It AIN'T mofuckin, coming.

Ben's job is to keep the stock market afloat, and with it, banks.  So all the idiots going, qe3 is coming!

We are fuckin still in 12000's with no signs of major weakness, hft is stomping muppets, mmf's and m&p funds are losing to inflation...

Second, its not QE3, qe3 already came.  Get your heads out of your asses. 

this is fuckin qe4 coming up, if it comes.  & if it does, it will be coming at like 2000 points down from here.

Sat, 07/21/2012 - 12:52 | 2638946 JamesBond
JamesBond's picture

why continue to bail water out of a sinking ship?

Because you are in it.

 

jb

Sat, 07/21/2012 - 14:52 | 2639078 michael_engineer
michael_engineer's picture

The real issue is not forcing China to buy new USTs, but rather in keeping them from selling those that they already have, and Ben knows that.

Sat, 07/21/2012 - 11:45 | 2638823 TruthInSunshine
TruthInSunshine's picture

Food crop commods are exploding and refined gasoline prices at the pump are causing pain at present level.  If Bernank does QE3 in any significant way, it'll literally be the spark that sets fire to food and gasoline prices, and at a time when moribund economy is least able to filter it without it causing even faster and more widespread consumer deleveraging, especially in anything discretionary.

I'm not saying The Bernank will or won't further break all markets (equities, bonds, commods, etc.) by engaging in more significant asset purchases.  it's getting dicey when the costs of doings so are higher than ever and any alleged benefits of doing so are rapidly shrinking.  There can be no additional utility to consumption by driving interest rates any lower.

All QE3 would do is doom Obama as gas, utility and food prices would soar, soaking the already feeble consumer, who is already quite pissed.

Bernanke literally can't do anything remotely resembling QE3 in any form (LSAP, tnote purchases) without causing a spike in gas, food and utility prices.

This is what happens when fractional reserve banking charlatans intervene in radical ways with the clearing function of markets by implementing idiotic, counter-productive monetary policy, and then break the markets.

Fiat games.

Sat, 07/21/2012 - 11:47 | 2638830 fonzannoon
fonzannoon's picture

Bernanke has everyone convinced that he has the tools to fix things. He also has the tools to keep things in place until Congress can fix them (spending cuts and tax increases). Congress knows damn well with us still in a depression that they ain't raising taxes and are absolutely not cutting spending. So they keep punting it back to Bernanke. Bernanke is now in his painted corner. "Get to work" or else you will absolutely take the blame for standing idly by while everything broke down and you did not use the tools you claimed you had.

 

Sat, 07/21/2012 - 12:19 | 2638895 Rainman
Rainman's picture

My crystal ball says Bernank wants a Romney win so he can get himself un-reappointed and dump this whole mess on the next ChairSatan. He should be keeping a short timer's calendar by now. He belongs in academia, anyway, where nonproductive bullshit is celebrated and glorified.

Sat, 07/21/2012 - 12:37 | 2638921 The Big Ching-aso
The Big Ching-aso's picture

 

 

Larrdy Summers has an excellent trak record of phucking things up.  Perfect candidate.

Sat, 07/21/2012 - 13:15 | 2638982 ThisIsBob
ThisIsBob's picture

... and the living is easy off the proceeds of students' loans.

Sat, 07/21/2012 - 14:38 | 2639066 Antifederalist
Antifederalist's picture

Biingo!

I have held this theory for some time.

He is screwed and knows it. His only move is to get out.

Romney win assures that

Sat, 07/21/2012 - 13:03 | 2638962 deez nutz
deez nutz's picture

"Get to work" .....

when the congress of the united states of america points to the federal reserve to save our country....... and then the fed points back ......

you know it is just about over.

 

Sat, 07/21/2012 - 14:25 | 2639054 TruthInSunshine
TruthInSunshine's picture

-

 

"Get to work, Mr. Chairstain. You know what you need to do."

 

-- Charles 'Fuck Flyover USA Homies - I Serve the Global Financial Interests Having Offices in Manhattan' Schumer

Sat, 07/21/2012 - 21:37 | 2639601 Arnold Ziffel
Arnold Ziffel's picture

Banker bonuses are record high. Unless and until these are jeopardized, there will no reason for Ben to print faster.

Unemployment, etc are not in his equation. Like most entities, they are beholden to only one group---their owners.

Sat, 07/21/2012 - 12:45 | 2638936 Global Hunter
Global Hunter's picture

that's a good point, one needs not a single economic model or complicated theory to conceptualize a world with US and Western economic contraction coupled with core inflation (oil, food, raw materials).  Bernank can waffle on all he wants quoting statistical study after statistical study but all he needs to know is the oil, gold, commidity price and then look at the unemployment rate and payroll numbers. 

 

Its not very complicated.

Sat, 07/21/2012 - 13:11 | 2638968 JuicyGrabs
JuicyGrabs's picture

You`ve nailed it. This is one reason many fail to notice. While Obama and democrats apparently keep pushing for QE(which would only affect stocks mostly and not the real economy), they don`t really want a QE to happen. They seemingly keep pushing for it to give the impression GOP are the bad guys preventing good policy to be implemented.

A QE3 would trigger higher food and oil prices which could really hurt Obama`s chances and provoke more unrest in the country.

A QE3 would actually hurt purchasing power of everyone, including Obama`s loyalist food stamp crowd. Money from QE2 and QE1 is still sitting unused in banker`s pockets, stashed away  in treasury bills and some in stocks. Most of the money never got to the real economy.

By the contrary, deflation is helping the average joe by increasing purchasing power. People can do more with same amount of money. Even food stamps can buy more and better food. While whole world is running to the dollar as safe heaven, US consumer can really benefit.

Sure some exporters would be hurt but since US imports surpass exports, US having big trade deficit, deflation is good news.

There`s also the fastly approaching war with Iran. Brzezinski thinks will happen before November elections. QE can`t possibly take place as even without a QE oil prices could get to 200$ in the event of an Iranian war.

Sat, 07/21/2012 - 15:38 | 2639125 michael_engineer
michael_engineer's picture

Just the hope that new QE could happen and boost the Markets gives the markets a high bias. Stocks went up on the other QEs so those investors that think new QE will come will pay more for stocks.

Sat, 07/21/2012 - 20:34 | 2639508 andrewp111
andrewp111's picture

BK thinks the Fed will cut the deposit rate instead of doing QE. If Bernanke does this, nominal interest rates will go negative.

Sat, 07/21/2012 - 11:59 | 2638785 Daily Bail
Daily Bail's picture

F-BOMB DETAILS - Geithner's Transparency Exposed In New Book By Neil Barofsky

 

It sounds like Geithner does not like to be challenged behind closed doors...

 

Sat, 07/21/2012 - 11:27 | 2638786 Alex Kintner
Alex Kintner's picture

Bernankster

In the end, the most effective actions he took were the same that Japan needs to take — namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing.

So say the smartest men in the room.  Devaluation is that all you've got?!

Sat, 07/21/2012 - 12:28 | 2638909 disabledvet
disabledvet's picture

This is an EXCELLENT point. One Greenspan was REMOVED his replacement was named "to solve the catastrophe of Greenspan" which...if understand Government at all...amazingly Ben Bernanke did in fact do. (The yield curve had been inverted for years so the Alan Greenspan could "phuck your normal" and replace it with his "Abbie Normal.") Interest rates were in fact well into a decline when the catastrophe of 2008 occurred and thus "Ben Bernanke could experiment so as not to be Japan" which in fact he did do. The results have been fascinating actually...but far from "non predictable" now that the crisis has passed. First and foremost "there is no inflation"...which of course was the stated goal of the policy by Ben Bernanke..."TO CREATE INFLATION." Hence where i disagree completely with this article. "The initial response worked to prevent a total collapse of the financial system"...unlike Japan where their Fed "let market forces prevail!" and now have Nikkei that in nominal terms is 75% less than it was in 1987! So how to get prices to rise "going forward" with Wall Street "buying bonds like Madmen and telling the recovery to "GO TO HELL! WE'RE SPECULATING IN EURO'S, SHORTING THE CRAP OUT OF YOUR USELESS AMERICAN SHIT AND GOING LONG COMMODITIES CUZ THAT'S A WINNER EVERTIME!" )(thus driving themselves into TOTAL bankruptcy this time.) This obvious condition has presented the Fed with a dilemma...which they have responded to quite capably by "throwing Wall Street under the bus and trying to see if maybe the Chinese are interested in buying into equities" or even "taking a little outside the risk profile of the totally insane." For public consumption the media has told all the CNBC clown watchers "THE CHINESE ARE NOT INTERESTED! THEY ARE BUYING BULGARIA INSTEAD!" (and now they are watching as the entirety of that investment portfolio explode in an orgy of euro-crap histeria.) What the media isn't telling you is "that clown on the TV isn't China." You may proceed to infer what you like from here on of course. I dictate to no person what he/she wishes to do with his/her personal money. Nor am i about to start by doing so now cuz quite honestly "i don't give a phuck." I ain't paid for this shit but i'm sure interested in the people who are! This is just my take "On History" and nothing more. If you wish to take advice from the other "economic historians" by all means...

Sat, 07/21/2012 - 11:38 | 2638795 Daily Bail
Daily Bail's picture

Bernanke is feeling the anti-printing heat from several sources.

Here are a few:

  1. Some in the MSM media...
  2. Some memebers of Congress...
  3. The economic blogoshpere minus outlets like Brad Delong/Krugman who want him to print to infinity...
  4. Foreign governments holding Treasuries who don't want the dollar destroyed...

Meanwhile tools such as Barney Frank, Chuck 'The Spending Truck' Schumer, Maxine Waters and others want the Bernanke to go FULL PRINT.

And without a doubt, Obama the Obankster is begging for some QE sauce to help him slide into Novemeber on a more favorable footing.

So, ZimBenwe is getting flack from all sides, and frankly, it couldn't happen to a more deserving stooge.

Sat, 07/21/2012 - 11:40 | 2638814 Popo
Popo's picture

The last one (#4) is true, but a non-issue.  There's no yield anywhere.  It's not like China can dump UST and pile in to some other paper that's got a better yield (without risking the principal to a dangerous level)

China has repeatedly voiced disagreement with US monetary policy and vice versa.  If China was going to dump they would have done it years ago.  Yes, the Fed is in a bind.  But it's not because China is "threatening to dump Treasuries".  That's an old saw that's not cutting.    China would dump in a nanosecond if there was yield to be had at the scale they need.   The whole world is slowing down and central banks are coordinating interest rate policy.  There's nowhere to run.

 

Sat, 07/21/2012 - 11:55 | 2638851 Daily Bail
Daily Bail's picture

You are correct on China and their lack of yield alternatives.  Still, it's pressure of some sort.  And just about the only satisfaction I can wring out of the past 24 months of QE, is the comforting knowledge that Bernanke is constantly stressed and under pressure from all sides.

I get measurable satisafaction from knowing that he doesn't get to enjoy his weekends, at least like he did back in his Princton days of Keynesian fluffing with fellow troglodyte Krugman.

Sat, 07/21/2012 - 12:21 | 2638900 DeadFred
DeadFred's picture

I've talked with several people recently who understand the Chinese mindset (most were Chinese) and all agreed that it's foolishness to impute Western short term profit motives on the Chinese. The Chinese are different. If losing half the value of their foreign reserves will give them an advantage in the wrestling match for alpha-dog position in the world they won't hesitate longer than an algo would. Who knows what plans they might have but don't think they're worried about quarterly reports the way the west is.

Sat, 07/21/2012 - 11:59 | 2638861 Buckaroo Banzai
Buckaroo Banzai's picture

It has less to do with finding yield, and more to do with making sure their principal isn't inflated away.

That said, I think that domestic political concerns would easily trump international ones. Obama comes from the Chicago School, where political enemies are punished, and threats eliminated, by assassination if necessary. So that's a big flaw in the argument here.

Sat, 07/21/2012 - 16:27 | 2639189 you enjoy myself
you enjoy myself's picture

It's not like China can dump UST and pile in to some other paper that's got a better yield

why other paper?  they've been hording gold for a reason.  we may not be there just this minute, but there will come an inflection point where China determines their gold portfolio's gains will outweigh their Tbill losses.  Ben is boxed into a corner on this - if China dumps treasuries the Fed can't/won't allow rates to rise.  which means the only possible response is for the Fed to conduct massive LSAPs. 

the offsetting gain/loss from massive printing at this point is assymetrical though - China's Tbills maybe take a 25% hit, but their gold could rise 500%-1000%.  god forbid if they expose a shortage at COMEX or LBMA in the process.

 

Sun, 07/22/2012 - 07:57 | 2639964 CSA
CSA's picture

That 500%-1000% would be against a worthless dollar.  The value of gold is the value of gold.

 

The intent would not be as evil as we percieve.  The China dump would be for survival and because their wings would be fully developed for flight as the new "only" game in town.

 

I'm not an economist, but last night I did stay at a Holiday Inn Express.

Sat, 07/21/2012 - 12:25 | 2638906 narnia
narnia's picture

He's not outwardly announcing a program because we have trillions of excess reserves in the system & he knows this won't work- which, if tried, will only further undermine the Fed's credibility.

He doesn't care about what our creditors do. The Fed will buy UST if the rate goes up past a magic number. If that means buying the Chinese position, so be it. They dump, they pay for it in devalued currency. This reality hasnt changed for years.

Sat, 07/21/2012 - 11:31 | 2638798 MGA_1
MGA_1's picture

The stock market has to go down....

Sat, 07/21/2012 - 11:34 | 2638802 blueridgeviews
blueridgeviews's picture

Could have a lot to do with the masses not being able to afford a roof, clothing, fuel  and shelter.

Sat, 07/21/2012 - 12:31 | 2638816 The Big Ching-aso
The Big Ching-aso's picture

 

 

Gotta wait 4 Europe to implode 1st.  Then mash the C-Pee B4 doo-doo button.

Sat, 07/21/2012 - 15:45 | 2639131 Mugatu
Mugatu's picture

Sorry, but I don't think the Chinese run our country yet.  The real reason is real simple:

Bernanke is playing Chicken with Congress.  The Fed is tired of doing all the heavy lifting and this is a subtle poke at Congress. If one corner of the government printing is fun, just imagine the fun the Fed and Congress can have together?  He wants his "Roosevelt" and his own "Roosevelt Congress". 

Sat, 07/21/2012 - 12:13 | 2638822 JustObserving
JustObserving's picture

US is desperately pushing China back toward treasuries

I think Aziz is very correct - the Fed is not printing to prevent the price of gold, alternate money, from threatening the hegemony of the dollar.

It is clear that problems are developing the gold market and the Fed is pushing gold and silver down.  Every statement by Bernanke is followed by a crushing move down in silver and gold:

"It is now beginning to be discussed, openly, that the unallocated gold is not at the banks.  This is definitely the case with many of the allocated accounts as well.  The reason I’m pointing this out is you have a more ‘open’ disclosure that’s taking place with regards to this.

The London Trader continues: 

 

“This tells me there is something major that is happening behind the scenes.  It tells me that the LBMA’s price fixing scheme is coming to an end.  You have these naked short positions, that are incomprehensible to most people, in both gold and silver....

 

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/7/20_London_Trader_-_The_LBMA_Gold_Price_Fixing_Scheme_Is_Over.html

 

Sat, 07/21/2012 - 12:43 | 2638932 disabledvet
disabledvet's picture

I think the Fed has the Treasury market cornered just fine thank you very much. The question is "how to get the US Economy off the financial heroin that Wall Street is on." China is a good an answer as any...makes sense...stands to reason...was the plan to begin with as "they were our top creditor" at the time of the collapse. With the EZ imploding I think China will be loathe to "try and lose anew" in that space. The Song Remains the Same however: "what does the US get out of deal." A war in Syria doesn't sound like a good result to me. But i'm just a Lonesome Cowboy here...riding across the Plains with me Guitar..http://www.youtube.com/watch?v=WLoYFvbR0XY&feature=related.

Sat, 07/21/2012 - 11:46 | 2638829 CrashisOptimistic
CrashisOptimistic's picture

There is a better answer for all this stuff.

He's not printing because he tried that and didn't get good results.

He has concluded, rightly, that the problems are not monetary and a monetary flailing about for a fix is likely to do more harm than good.

The problems are oil scarcity, and fiscal devastation, in that order.  He has no control over either.

Sat, 07/21/2012 - 11:54 | 2638839 fonzannoon
fonzannoon's picture

Crash if it ever even dribbled out that he felt that way you would see the biggest immediate deflationary crash in history. If he feels that way (and he must) maybe our descendants will read about it in his memoirs which will be made public in the year 3000

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