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Hilsenrath Speaks: "Fed Prepares To Act"

Tyler Durden's picture


Anyone who may have been harboring doubts that the Fed will pull yet another economically destructive policy out of its bag of genocidal tricks on September 21 can now relax. Jon Hilsenrath has spoken, and while we don't know just what form QE3 will take place (as a reminder any form of duration extension, and hence, artificial risk shit can be reduced to the broad definition of Quantitative, or otherwise, easing), he does give us a menu of three options: i) Operation Twist, as first discussed by Zero Hedge back in May, ii) a reduction in the Interest on Overnight Excess Reserves (IOER) from 0.25% to something... lower, a move that would wreak havoc and completely destabilize money markets, and iii) more jawboning -  a step the would merely make existing promises, such as the ZIRP through mid-2013 even less effective. Bottom line: like it or not, in two weeks we all do the twist.

From said mouthpiece:

Federal Reserve officials are considering three unconventional steps to revive the economic recovery and seem increasingly inclined to take at least one as they prepare to meet this month.

The three options, of which number one is all the matters:

One step getting considerable attention inside and outside the Fed would shift the central bank's portfolio of government bonds so that it holds more long-term securities and fewer short-term securities.

The move—known to some in markets as "Operation Twist" and to some inside the Fed as "maturity extension"—is meant to further push down long-term interest rates and thus encourage economic activity. The program draws its name from a similar 1960s effort by the U.S. Treasury and the Fed, in which they tried to "twist" interest rates so that long-term rates were lower relative to short-term rates.

Anticipation of the move—along with grim economic news and the Fed's public plan to keep short-term interest rates near zero through 2013—has helped push yields on 10-year Treasury notes, above 3% in late July, to around 2%.

Although some consumers and businesses are unable or unwilling to borrow more at any interest rate, several Fed officials believe pushing rates still lower can help on the margin.

"There are still some businesses that at a lower cost of funds are going to make investment decisions and hiring decisions based on an ability to lock in those funds at a lower rate," Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview.

He lists the program as one that should be considered. "There are people that will be buying homes or refinancing homes" if long-term rates are lower.

Funny, because this is precisely the fake assertion we refuted earlier by showing the recent move in the 10 Year yields, and the dramatic plunge in MBA refi applications. But that's irrelevant: the Fed will do whatever it will do without regard for actual practicality and/or reality. Also, let's not forget that when the 2s10s hits 50 bps and the Treasury is scrambling to come up with excuses for TARP 2, we will all know what caused the latest and final implosion of BofA.

The other two options which are completely irrelevant, as they will not be used:

A second step under consideration at the Fed, one getting mixed reviews internally, would reduce or eliminate a 0.25% interest rate the Fed currently is paying banks that keep cash on reserve with the central bank.


The 0.25% payment is greater than the 0.196% rate an investor can get on a two-year Treasury. Some officials believe the Fed shouldn't reward banks for holding cash instead of making loans.


"I'm not especially pleased with the way that policy tool is working at the moment," Charles Evans, president of the Federal Reserve Bank of Chicago, said in a recent interview. Mr. Rosengren said cutting that rate could give banks more incentive to lend and would further signal the Fed's determination to get the economy going.


Other Fed officials believe that reducing the rate wouldn't do much good because it is already so low, and might instead disturb short-term money markets.


A third step Fed officials are debating would involve using their words to make their economic objectives and plans for interest rates more clear.


Some officials felt the Fed's August pledge to keep rates low until 2013 wasn't specific enough about what was driving its thinking. They want the Fed to say what unemployment rate or inflation rate would trigger it to boost rates.

And there you have it. The only question remaining is whether or not, as Morgan Stanley suggested earlier, the Fed would act in conjunction with all global investment banks in another round of global easing. Since this is coming from Morgan Stanley, and since gold has indicated there is no way in hell this would happen, we can safely ignore it, but we recreate the report below for those who wish to be entertained.

Lastly, the question of whether plain vanilla LSAP (Large Scale Asset Purchases) will be announced in two weeks is unknown although as was previously discussed the most likely timeframe is for the Fed to convert about $450 billion in 1.5 - 4 year bonds into long term ones, a process which will take about 6-8 months at about $55-$65 billion in POMO per month, at which point the Fed will have to expanded aggressively in monetizing all of the remaining $2.4 trillion in debt to be issued over the next 12 months.

As such we expect LSAP to be announced in March of 2012.

Also as a reminder, for those desperate for more hints even though the gameplan is now well known, tomorrow at 1:30 pm Bernanke speaks at the Economic Club of Minnesota Luncheon, in Minneapolis, Minnesota - an event which may see some local protests. While it is unexpected that he will share anything actionable at this point, the market will most certainly surge by another 10-15 points regardless of what he says. After all there will be headlines, and with Europe closed, this is all that will matter.


Here is the justification for Morgan Stanley's delusions that global concerted easing will finally make that bullish steepener idea reality of 3 years of endless errors.



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Wed, 09/07/2011 - 21:09 | 1644306 navy62802
navy62802's picture

Gold!! The ultimate hedge against the Federal Reserve.

Wed, 09/07/2011 - 21:56 | 1644493 Ahmeexnal
Ahmeexnal's picture

Option 4:  "Operation Viagra".  Pump the stock markets so they end up with huge erections at the close.

Thu, 09/08/2011 - 00:55 | 1644968 spiral_eyes
spiral_eyes's picture


Why do you say eliminating interest on excess reserves would wreak havoc in money markets? It's not a long-term norm. It was only introduced in 2008, and then we went through two (or debatably three) programs of QE and all that extra cash — instead of getting loaned to businesses — is sitting there, and the Fed pays interest on it, fuelling the liquidity trap. 

I'm not saying that suspending interest on reserves will solve all of America's problems, but if it's preventing lenders from lending to businesses because it's easier for them to sit on the cash, isn't paying interest on it kind of rigging the market to just sit there and hold cash? Shouldn't the Fed stop it?

Plus, I'd say it was a transfer of wealth from the taxpayer (profit returned to the treasury at the end of the year) to banks...  

Wed, 09/07/2011 - 23:25 | 1644742 Dingleberry
Dingleberry's picture

"The Fed will act"

To which I reply, "Gold will act, too"

Wed, 09/07/2011 - 21:12 | 1644317 Careless Whisper
Wed, 09/07/2011 - 21:58 | 1644498 navy62802
navy62802's picture

The people are angry. That's the 1000 pound guerilla in the room of which no one dares speak his name. People are angry, and the more economic injustice they are made to endure, the more that anger will grow. There's a tipping point, we just haven't found it yet.

Wed, 09/07/2011 - 23:01 | 1644678 StormShadow
StormShadow's picture


Wed, 09/07/2011 - 21:15 | 1644325 urbanelf
urbanelf's picture

QE3 will come in one of the pre-chosen forms. During the Rectification of the Vuldronaii, QE came as a large moving Torb! Then, during the Third Reconciliation of the Last of the Meketrex Supplicants, they chose a new? form for QE: that of a giant Sloar! Many Shubs and Zulls knew what it was to be roasted in the depths of the Sloar that day, I can tell you!

Wed, 09/07/2011 - 21:24 | 1644358 Ned Zeppelin
Ned Zeppelin's picture

Now, that's funny. 

Wed, 09/07/2011 - 21:39 | 1644439 Cash-NonCash
Cash-NonCash's picture


Thank you so much UrbanElf, that was the best post I've seen all week!

Wed, 09/07/2011 - 22:23 | 1644575 Id fight Gandhi
Id fight Gandhi's picture

I choose the stay puff marshmallow man. Idk it just popped in there.

Thu, 09/08/2011 - 00:03 | 1644820 akak
akak's picture

QE3 will come in one of the pre-chosen forms. During the Rectification of the Vuldronaii, QE came as a large moving Torb! Then, during the Third Reconciliation of the Last of the Meketrex Supplicants, they chose a new? form for QE: that of a giant Sloar! Many Shubs and Zulls knew what it was to be roasted in the depths of the Sloar that day, I can tell you!

Having solved our economic woes, our glorious leader will then lead us into war against the blasphemous Engtalian enemy under the banner "The Gostak Distims the Doshes!"

All hail the Gostak!

Wed, 09/07/2011 - 21:15 | 1644328 TradingJoe
TradingJoe's picture

Aka for now NO NEW CASH/MONEY etc as in all of the above won't do shit for jobs OR Wall Street ergo.....QEx Not Just Now! maybe later :)))

Wed, 09/07/2011 - 21:27 | 1644380 sun tzu
sun tzu's picture

It won't do shit for main street, but it will prop up wall street and the megabanks.

Thu, 09/08/2011 - 00:05 | 1644859 SheepDog-One
SheepDog-One's picture

TradingJoe, Im fed up with this crap now that some bond rate hand holding program passes for 'QE3', this is straight up bullshit, 'QE3' has been a couple $trillion priced into every bad piece of news since January.  Operation Carrot and Stick is all theyve got and this is not QE they fall a couple trillion short. 

Wed, 09/07/2011 - 21:20 | 1644346 johngaltfla
johngaltfla's picture

Option 1 will result in an inverted yield curve and collapse of about 30% of the nation's regional banks with questionable reserves and weak real estate holdings.

Option 2 only works if the Swedish model is implemented in full with the nationalization of the insolvent institutions and forced consolidation which the Dodd-Frank legislation allows the Fed to pursue.

Option 3 is just more bullcrap.

Thus 3 will probably be the decision as the Bernank ain't got the balls to commit to #1 or #2.

Wed, 09/07/2011 - 21:33 | 1644414 sun tzu
sun tzu's picture

They might monetize and twist at the same time in a coordinated effort with the ECB. The masses will be taxed to save the banks. The tax will be in the form of inflation

Wed, 09/07/2011 - 21:52 | 1644452 DormRoom
DormRoom's picture

your half right about inflation.  There will be a short term rise in inflation expectation, not inflation, but long-run inflation will be mute, if the velocity of money is controlled.


The Fed is doing what the BOJ didn't do in the 90s: keep interest rates low, so households can continue to deleverage.  However for the policy to be effective, it requires fiscal stimulus, to help household rebuild assets. Both sides of the ledger must be acted on, which is why the brinkmanship in Congress, is so destructive for the middle class.

Most of the money the government spends on fiscal stimulus, assuming a moderate multiplier effect, would be recouped from VAT (value added taxes), and income taxes, from increased economic activitiy (think of a multiplier effect as a viral effect--going viral) through-out the nation.  So the NET cost of the fiscal stimulus would be far far less than the initial cost. Moreover, households on the precipice would be able accelerate the pace in which they  can repair their balance sheets.



Wed, 09/07/2011 - 22:22 | 1644573 Bicycle Repairman
Bicycle Repairman's picture

"would be recouped from VAT (value added taxes)"


Wed, 09/07/2011 - 22:24 | 1644578 Id fight Gandhi
Id fight Gandhi's picture

Value added tax is an oxymoron

Thu, 09/08/2011 - 10:38 | 1646019 Bicycle Repairman
Bicycle Repairman's picture

Orwellian double-speak at it's finest.

Wed, 09/07/2011 - 22:32 | 1644603 whstlblwr
whstlblwr's picture

How has it worked so far? Look at gas prices right now. Interest rates low so households can deleverage? WTF you smoking? Many households aren't paying mortagage and get food stamps and benefits. Stop reading your papers and go out in real world to open eyes.

Thu, 09/08/2011 - 04:07 | 1645271 narnia
narnia's picture

if fiscal deficits resulted in greater economic activitiy over time, then it would be impossible to have a 100%+ debt to GDP ratio.  actually, it would be impossible to have anything but a surplus over time.  it's more than just a little obvious this whole multiplyer effect is a myth or a selective presentation of data.

fiscal stimulus can provide contract employment for some politically determined output for some period of time.  that output may eventually lead to some productivity in the private sector.  the job experience may benefit those working on the ouput & may be more beneficial to all of us than the same people hanging out on a street corner or melting away in front of a tv.  in the end, though, this spending does not result in a long term sustainable job.  it can have a negative effect on resource (including commodities) markets with artificial demand.  it also has to be paid for by taxation of the private sector, which erodes everyones' quality of life. 

Thu, 09/08/2011 - 01:50 | 1645083 johngaltfla
johngaltfla's picture

Monetizaton only works when the funds escape Wall Street and make it to Main Street. As long as insolvent institutions are allowed to park capital at the Fed, collect interest then use those funds to fill black holes on their balance sheets, the process is akin to peeing in the ocean to fill it up with more water.

The insolvent institutions must be shut down and consolidation forced upon the industry. Until this happens none of the programs will work as the money will simple evaporate to reduce losses and maintain bonus structures for high level investors and company officers.

Wed, 09/07/2011 - 21:22 | 1644354 Ned Zeppelin
Ned Zeppelin's picture

Really nutty stuff, you gotta admit.  Of course, when you only have a hammer, every problem becomes a nail. 

So I assume the Fed sells its inventory of short duration treasury debt into the market (rates rise as supply increases) - presumably at a loss as the effort gains speed - and use the proceeds to buy from the friendly PDs their freshly acquired, newly minted longer term debt issued by the Treasury (again at a sweet markup). Would this not also have the effect of slightly changing the composition of the national debt towards longer term? 

Wed, 09/07/2011 - 21:26 | 1644374 oogs66
oogs66's picture

operation twist will be a non event...without flooding the system with money, they won't get the same impact on stocks as qe2

Wed, 09/07/2011 - 22:35 | 1644610 whstlblwr
whstlblwr's picture

Except gas, look at gas future today.

This is class warfare. They throw hardworking saver and people need to eat and fill car under a bus to save rich bankers.

Wed, 09/07/2011 - 21:32 | 1644382 no life
no life's picture
  1. One other small hint was the 5 or 7 Fed governors who gave speeches in the last week practically pounding the table for QE3...
Wed, 09/07/2011 - 21:29 | 1644392 oogs66
oogs66's picture

on the 7th day, MS said let there be globally co-ordinated easing and QE and stimulus, and it was done

Wed, 09/07/2011 - 21:29 | 1644393 chump666
chump666's picture

" its bag of genocidal tricks"

hahaha, yep they are genius's at destabilising markets.  No one buys their sh*t anymore, cause it's bad sh*t now

Wed, 09/07/2011 - 21:30 | 1644396 Sequitur
Sequitur's picture

For fuck's sake, can the Fed, for once, NOT act?

Wed, 09/07/2011 - 21:30 | 1644397 zorba THE GREEK
zorba THE GREEK's picture

Let's twist again like we did last summer,

Let's twist again like we did last fall,

Do you remember when things were really humming,

Let's twist again til we hit the wall.

Wed, 09/07/2011 - 21:30 | 1644398 Mactheknife
Mactheknife's picture

The Federal Reserve is owned by its member banks.  If that's what they want then that's what they'll get.  Anyone who thinks otherwise doesn't know the facts. There are only five countrys on the planet that don't have a cartel owned central bank.

Wed, 09/07/2011 - 22:32 | 1644599 Trimmed Hedge
Trimmed Hedge's picture

Could somebody list these 5?


Thu, 09/08/2011 - 10:29 | 1645976 whartman
whartman's picture

I understand that one of them is Libya.  Expect that to change now.


Makes you think, hum?

Wed, 09/07/2011 - 23:09 | 1644406 traderjoe
traderjoe's picture

Did anyone seriously doubt that the criminal private banking cabal would do what ever it takes to continue the theft and grift for just a little bit longer? Hyper-inflation is the ultimate end-game.

Wed, 09/07/2011 - 21:33 | 1644411 miker
miker's picture

QE3 will come before March 2012.  The economy is accelerating to the downside.  I see local evidence all around of slowdown and people are running scared.  The Feds will continue their propaganda campaign but it is becoming less and less effective.  People are starting to see through the BS.  I think by the end of 2011, the game will be up.  Perhaps around the holidays; not sure. 

Wed, 09/07/2011 - 23:31 | 1644765 Alpha Monkey
Alpha Monkey's picture

It will be interesting to see the sales data from the holiday season.  Everyone I know is talking about the sour economy, and how it has impacted them.

Wed, 09/07/2011 - 21:35 | 1644417 plocequ1
plocequ1's picture

Thanks ZH. This is the third time i died. Sept. 21 will make it the forth. Even the the ever loving flesh eating maggots are confused

Wed, 09/07/2011 - 21:34 | 1644424 disabledvet
disabledvet's picture

At the rate we're going "there won't be any banks to act in concert with" soon. What if the Fed had a bailout party and nobody came? Obviously the joint "panic" session tommorow is all about "bailout 2.0" of state and local governments so that Obama won't have to be dealing with "Greece: USA style" come election day...or sooner. Sounds like a non-starter already. According to my sources "announces moon colonies/introduces colonists" has piqued some interest however.

Wed, 09/07/2011 - 21:35 | 1644428 adr
adr's picture

One man has while the other has not. 

How can you love what it is you have got.

When you've taken it from the weak hands of the poor.

Liars and thieves you don't know what is in store.

There will come a time when I'll look you in the eye.

You'll pray to the god you've always denied.

Then I'll go out back and get my gun.

I'll say you've never met me but I'm the only son.


Great song by Mumford and Sons...

Wed, 09/07/2011 - 21:40 | 1644444 ShoeShineBoy
ShoeShineBoy's picture

1840 down, 160 to go pre-QE3, beyond that, we all know where we are headed

Wed, 09/07/2011 - 21:43 | 1644454 Masquerade
Masquerade's picture

And Gold just went vertical!

Wed, 09/07/2011 - 22:58 | 1644628 X.inf.capt
X.inf.capt's picture

and i saw people panicing over a $100 move yesterday, 'i should sell' they said. man, if that scared them, wait till WSHTF.

the situation hasnt changed, QE3,4,5 coming, bullish for PM's


PRE65 dimes

and stay cool, boys, SHTF already, its just getting started.

Wed, 09/07/2011 - 21:53 | 1644483 max2205
max2205's picture

News Flash: the patient has passed away a few years ago. Time to bury the carcass

Wed, 09/07/2011 - 21:56 | 1644492 buzzsaw99
buzzsaw99's picture

whatever they do it will only help the wall street bank maggots and hurt main street. book it.

Wed, 09/07/2011 - 22:06 | 1644513 Pike Bishop
Pike Bishop's picture

The burden of propping up markets and the economy for the next few months thus falls on central banks.

Propping as a concept is fucked.

The negative feedback loop between weak growth and soggy asset markets makes a coordinated monetary policy easing move more likely.

It's not a loop, it's stasis. There is no real growth and the assets are marked-to-Tinkerbell. "Likely" still doesn't mean effective. No matter how many times you wish it to be true.

Such strategic complementarity also exists for EM central banks

Two times stupid, still equals stupid.

However, the interaction between DM and EM centralbanks is one of ‘strategic substitutability’ –

In most courts it's called co-conspiracy. If it's international, it's called a global brain-fart.

Wed, 09/07/2011 - 22:06 | 1644519 LookingWithAmazement
LookingWithAmazement's picture

Finally, something might happen. I was already bored about gold and silver not so much exploding, even "correcting", and further looking forward to Christmas, even more so now the euro has been saved for a while. So maybe, maybe, some action. Gold $2000+ shortly? No, not too hastily. In a year or so; the big bankers will keep gold low for a long time more. No spectacle. Boring world we live in.

Wed, 09/07/2011 - 22:31 | 1644600 taraxias
taraxias's picture

Stop wasting our time and just post "boring world we live in", we'll assume the rest of your troll post.

Wed, 09/07/2011 - 22:50 | 1644654 LookingWithAmazement
LookingWithAmazement's picture

Boring world we live in.

Wed, 09/07/2011 - 22:09 | 1644522 razorthin
razorthin's picture

I'd have the lizard Gingrich as president for 10 minutes if he would immediately make good on his debate promise.

Wed, 09/07/2011 - 22:08 | 1644527 hunglow
hunglow's picture

I will sell you my future unused unemployment if you train me for rocket engineer, scratch that, politician, scratch that, whore.

Wed, 09/07/2011 - 22:09 | 1644529 ShoeShineBoy
ShoeShineBoy's picture

on a second thought, i am bored with the price action in gold/silver, i want some more margin hikes before i reload.. margin hike bithhez.

Wed, 09/07/2011 - 22:11 | 1644536 optimator
optimator's picture

I wouldn't mind seeing the FED members do the twist, from trees.

Wed, 09/07/2011 - 22:11 | 1644539 theinebriatedsot
theinebriatedsot's picture

and they've put gold on sale again! are these guys cool, or what?

Wed, 09/07/2011 - 22:11 | 1644541 Endstrategy
Endstrategy's picture

What does twist do to the TBT (ultrashort 20+ year treasuries)?

If the twist option lowers long term interest rates, what would that do to 20 year treasuries?

Wed, 09/07/2011 - 22:16 | 1644546 Big Ben
Big Ben's picture

Although the goal of Operation Twist might be to lower long term interest rates, it could also have the effect of raising short term rates. If it caused short term rates to rise above the 0.25% rate that the Fed is paying on reserves, it might cause banks to start using their excess reserves to purchase short term bonds. The Fed printed a huge amount of money in QE1 and 2, but currently inflation is only running around 4%. This is probably because most of the money that the Fed printed is currently deposited in the Fed banks as excess reserves. If those excess reserves are ever allowed to leak out into the economy, they will cause lots of inflation. I presume that the Fed's long term plan is to somehow get those excess reserves into circulation. Otherwise why create them in the first place?

Wed, 09/07/2011 - 22:19 | 1644559 ShoeShineBoy
ShoeShineBoy's picture

 it sounds right on the firt pass, however, if you noticed, FOMC announced small scale trials of reverse-repo operations where these fucker banksters are guaranteed to sell treasuries that they would buy from NYFED at a "fixed price" regardless of where the yield might be headed. It is this reverse-repo with NYFED that would push all these excess reserves at the FED back to the treasuries via reverse-repo.. If FED lowers, i think it is given in a sense, the excess-reserve rate from, say 25bp to 0 then this fuckers will droll all over the 20bp 2-yr treasuries which will help FED achieve what it is targeting.

Wed, 09/07/2011 - 22:17 | 1644551 Species8472
Species8472's picture

It's simple, hold down longer rates while the treasury moves out on duration. The Gov needs to lock in some low rates soon.

Wed, 09/07/2011 - 22:18 | 1644552 chump666
chump666's picture

l Asian trading is showing that 'sell' signal again. 

Wed, 09/07/2011 - 22:18 | 1644558 vote_libertaria...
vote_libertarian_party's picture

Econ 101:  Supply and demand...nobody sees it.


Lets say they do monetize and additional $55-$60B per month.  The debt is growing by $120B per month.


Supply goes up + demand doesn't keep up = prices go down.


They have been able to avoid it so far but they won't be able to forever.

Wed, 09/07/2011 - 22:28 | 1644591 ShoeShineBoy
ShoeShineBoy's picture

It is once in a life time opportunity for federals to go wild with fiscal budget while Ben & Co bussy keeping the rates, both short and long (7 to 10 and now it is getting to looong end, too) low. By doing this, i.e. 10yr around 2%, it is an amazing opportunity for the fiscal expansion.


FOr any sovereign, it is not only the stock of debt but also the interest rate that sovereign pays vs. the growth rate of that economy.


So, if we assume Bill Gross & Co is right that new normal is 2% growth, 10yr rates are already at 2% and it might even go lower BEFORE shooting up with the en-masse avoidance of treasuries through inflation channel.


Also, most of the US debt is still short date, afaik less than 5 yr maturity. So, with this low rates, government will be able to extend the maturities up and beyond 10 yr, at least this is what Bennie Boy is expectiong the effer politicians to grasp.


Once economy put on track, then all these deficit funding debt will be a lot of stock of debt that needs to be paid and at that stage, there you come inflation, which will be another bone to the economy, governemtn debt, etc..


So, how does that effect us? As obvious, buy GOld and once the rates/yields hits bottom, go buy tons and tons of TBT & TMV, ultra-short treasuries.

Wed, 09/07/2011 - 22:21 | 1644566 spanish inquisition
spanish inquisition's picture

QE3 - Time for the Holy Hand Grenade..

And? the LORD spake, saying, "First shalt thou take out the Holy Pin, then shalt thou count to (QE)three, no more, no less and the number of the counting shall be (QE)three. Four shalt thou not count, neither count thou two, excepting that thou then proceed to (QE)three. Five is right out. Once the number (QE)three,? being the third(QE) number, be reached, then lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who being naughty in My sight, shall snuff it." Amen.

Wed, 09/07/2011 - 22:24 | 1644576 the grateful un...
the grateful unemployed's picture

policy target inflation: check

policy target interest rates: check

policy target equities: check and double check


if you have successfully achieved one and two and you allow equity markets to close below the return on the equivalent bond yield, YOY, you don't deserve the job. DJIA must finish plus 3% or better, by Jan 1, and let the devil take 2012, but not that difficult from here, 12000 or so. if they can't handle this they deserve the guillotine.

Wed, 09/07/2011 - 22:40 | 1644626 holdbuysell
holdbuysell's picture

IMO, key quotes from the WSJ article:

"Mr. Bernanke has long favored a specific target for inflation."

"Mr. Rosengren says the Fed should consider an even more radical measure, one not now among steps Mr. Bernanke has said he is evaluating: consider capping medium-term interest rates. If the economy worsens, he notes, the Fed could pledge to cap yields on Treasury bonds with maturities for as long as two years under a certain low level."

Wed, 09/07/2011 - 22:42 | 1644636 JR
JR's picture

The move—known to some in markets as "Operation Twist" and to some inside the Fed as "maturity extension"—is meant to further push down long-term interest rates and thus encourage economic activity. -- Tyler

The financial crisis has been caused by removing the growth potential from the private sector and giving it to the public sector and the investment banks; hence, the transfer of jobs and largesse to the public sector and the “TBTF’s”  because of stimulus. The constant encouragement to banks to loan by stealing from the very businesses they were to loan to means they’re stealing from the private sector in order to loan to the private sector.

And since QE2, we’ve had proposal after proposal on how QE3 would work. All of the policies use the same operational Twist...stealing from small businesses in order to loan to small businesses at interest or to gift to the small business competitors, the national chains (pals of the Fed), so that they can keep the Dow Jones up, the politicians in office and their monopolies viable.

Savers and small businesses are falling like flies and Morgan, Chase and Goldman and the boys have a great idea – more of the same.

Good grief! the bankers get free money now. How can you make it more free – unless your purpose is to destroy the economy and freedom in route to despotic control.

I predict the Fed’s last card is in Bernanke’s hand; fortunately, to play the same losing suit in full public view is the path to restrictions on the Fed, auditing of the Fed, and revelations on who is on the receiving end of the greatest financial theft of private money in the history of the world.

Let QE3 begin... The potential for growth is the real wealth, and they don’t have it!

Wed, 09/07/2011 - 22:45 | 1644644 slewie the pi-rat
slewie the pi-rat's picture


we know: 

  • chubby checker is booked for the prom 
  • talk is cheap and bullshit walks
  • lowering the IOER is QE
  • all QE is not LSAP 
  • all LSAP is QE
  • all LSAP is not funding the US debt 
  • all funding of US debt is QE
  • almost all funding of US debt has been LSAP, historically
  • therefore "QE II" was not really QE 2 but more like QE 555-666 since the chairsatan was "approved"
  • QE III (3) happened years ago
  • maybe folks ought to start differentiating between QE, LSAP, and funding the Treasury debt
  • 2 outa 3 ain't bad
Wed, 09/07/2011 - 23:19 | 1644661 agrotera
agrotera's picture

Why would the Fed tell the public that ANY rate hike makes our sovereign defalut no bones and that much more of a certainty, exposing the scam that was the government sanctioned toobigtofail sacrosanct bailout of corrupt bankrupt entities ? And would the Fed ever admit that this 0.25% on deposits was a HUGE scam on all of us, since it is an expense paid by all of us, the taxpayer, to keep open a bunch of bankrupt entities that already robbed the country...honesty is not a prerequisite for being one of the expert high intellects that run the country (privately owned federal reserve owners and agents) Why would they end their game of frontrunning everyone else with the blessing of the president's working group, and free money to do so? 

Meanwhile, the small local banks get sucked to death with all the charges for FDIC insurance and legal expenses associated with understanding the new and "improved" regulations that are enabling their slow death to be sucked intothe blackholesacrosancttoobigtofail banks.

Wed, 09/07/2011 - 22:54 | 1644664 AldoHux_IV
AldoHux_IV's picture

So headlines are the new form of QE^n and the real economy suffers at the hands of these genocidal maniacs. These central bankers need to be tried for their continuing crimes against humanity.

Wed, 09/07/2011 - 23:03 | 1644688 StormShadow
StormShadow's picture

"artificial risk shit"

Nothing to add there

Wed, 09/07/2011 - 23:17 | 1644717 Founders Keeper
Founders Keeper's picture

Whatever form QE3 takes, I am certain it must also accommodate the implosion unfolding in Euroland.


Wed, 09/07/2011 - 23:24 | 1644736 lano1106
lano1106's picture

please, clarify your though.


Will it accomodate europe to avoir implosion or will it accelerate it?

Thu, 09/08/2011 - 00:29 | 1644730 lano1106
lano1106's picture

Something that I do not understand is that I though that the bar for QE3 was really high. In order to have public acceptance, a small crash in equities that would shit scare small retail investor would be required.

On top of not having that *yet*, according to the Fed beige book, the economy is growing.


On the assumption that the market meltups are artificial and created by the ones who would most benefits by QE3. That seems counter-productive.


Or, there will be no QE3 and knowing that this realization will be negative on the equities, they are slowly pumping to just return to square 1 when markets will drop.


Thu, 09/08/2011 - 01:31 | 1645050 mikeurl
mikeurl's picture

I don't think a twist would be considered QE.  If you just break down the words "quantitative easing" it means increasing the quantity of money.  That really only happens directly when the Fed increases its balance sheet.  A twist would be...qualtitative easing.  Which is still easing but instead of more currency it is a manipulation of rates along the curve.  It would actually be a lot closer to traditional monetary policy in that respect (though normally they only target the very short end of the curve).

A twist would have its greatest effect with additional QE.  If they destroy bond yields all across the curve then new money will be forced into "risk on" assets + gold.  They'll keep kicking gold with margin requirements.  Frankly I think they want the money to go back into the stock market because about the only thing the Fed can do here, or hope to do, is increase the wealth effect.  They can't force people to borrow and the spectacle of paying people to take out loans is still outside the realm of the possible though I'd hardly rule it out.  They kinda tied their own hands by bashing the subprime lending standards for so long.

I bet they'd love to get a little subprime action going right about now...

Wed, 09/07/2011 - 23:37 | 1644785 mudduck
mudduck's picture

He says that QE is to keep interest rates lower? Seems to me rates went up during QE1 and QE2 and down in between and after (now). WTF. Am I missing something?

Wed, 09/07/2011 - 23:38 | 1644788 terryfuckwit
terryfuckwit's picture

never mind operation twist.... sounds more like wringing the last few drops from a debt saturated economy..

Thu, 09/08/2011 - 00:08 | 1644867 SheepDog-One
SheepDog-One's picture

None of this is the QE3 trillions thats been baked into stocks all year since DOW 9,800, somethings got to give big time.

Thu, 09/08/2011 - 01:13 | 1645005 Jovil
Jovil's picture

Living through a currency devaluation

I was managing an American subsidiary of a successful large US Company in Mexico. It had been a financial turnaround for our team. Cash flow had accumulated in our bank in Mexico and corporate didn’t want the money repatriated to the US. Although we had already paid a 35% income tax to the Mexican government, we would have to pay an additional 30% exit tax to repatriate the money. In addition, we would have to pay high fees for the peso/dollar exchange, in order to make the transfer. The company wanted to expand our successful business and so we decided to keep the money in Mexican pesos to be used for further expansion.

One morning, as my wife and I were on a trip driving on the highway, we heard a national message from the President of Mexico in 1976, Luis Echevarria, one of the most corrupt presidents in Mexican history. “It is a lie that we are going to devalue the peso,” he said.

Read more

Thu, 09/08/2011 - 02:44 | 1645199 Paralympic Equity
Paralympic Equity's picture

I personaly think that they will adopt the extending of the maturities, and lower the rate for exesive reserves.

In that maner they will have stady buyers in the short end, as banks will buy shorter term treasuries, and the Fed will be buying in the longer term. In this way everybody is happy, don't you think?

Thu, 09/08/2011 - 08:22 | 1645472 overmedicatedun...
overmedicatedundersexed's picture

devalue the FRN- any way we can- that's the goal- then debt is not such a problem.

poor John Q has no idea..

but the TBTF banks will own it all.

great plan, Ben is on board, Obuma is on board, EU is on board. ooops the EU wants a devalued Euro, and Japan ooops wants lower Yen.

the only thing wrong with Ben's goal is those japs and EU drones are front running you.

Thu, 09/08/2011 - 12:46 | 1646579 Mediocritas
Mediocritas's picture

OK, here's a fourth "nuclear" option. Given the desperation on display in the central bank community, I wouldn't be surprised to see it happen:

1). The ECB top-brass capitulate and admit that austerity just isn't working. They roll over and embrace QE, Japan/US style.

2). Those pesky European politicians, you know, the ones who believe in maintaining sovereignty and trying to preserve some concept of "democracy", get in the way and tie the ECB down with red tape.

3). The ECB pinky-swears to Germany that decisions to purchase eurotrash debt (in order to take heat off of surging yields) will be made with Germany in the driver's seat. (I'd suggest assigning vote weighting based on the inverse of current yields).

4). Massive expansion of the EFSF is now on the cards (bringing forward the ESM), but Europe being Europe, the political wrangling is taking too long meanwhile banks aren't unexploding.

5). The ECB cuts a deal with the Fed. The Fed will use its euro reserves to purchase eurotrash debt on the condition that the ECB buys it off the Fed in the future, once the political red tape has been resolved and the ECB has been granted the power it wants. When the Fed runs low on reserves, it pushes for a raise to the limit on its swap line with the ECB, swaps for Euros and swaps for more eurotrash from trouble primary dealers exposed to PIIGS.

6). The process also provides the ECB with fresh eurodollars to provide liquidity as European banks become stressed. Lack of eurodollar liquidity can be supported further by the ECB actively drawing on its (unlimited) swap line with the Fed. Failing that, the Fed may repeat QE2 and swap directly with primary dealers.

7). Enough dollar and euro liquidity make it into Europe to "stabilize" the system (yes I know, kick the can, more inflation, more GDP erosion, still screwed). ECB finally blackmails, begs, sleeps with the right people to get expanded powers and buys eurotrash off the Fed, reinstating the Fed's foreign exchange reserve and unwinding any large open currency swap position. The Fed has provided temporary support and is now back where it was and the ECB is sitting on a big pile of garbage (its version of subprime MBS).

I'm sure the central banks are quite fond of a plan like this. There's just one problem. If the Fed does it and then Europe does what Europe has a habit of doing and implodes in a bickering slap-fest anyway, then the Fed will have just injected a motherlode of international liquidity, with no way to withdraw it, and will also end up sitting on a pile of toxic eurotrash to go with existing legacy assets. It wouldn't surprise me at all to see a rare moment of unity in Europe as players there realized a rare opportunity to screw the USA by offloading eurotrash to the Fed. "We'll repurchase it....HONEST!"

I think something like this will happen if Europe really starts going 2008 on us. All the added liquidity will, like before, prove impossible to withdraw leading to much more serious commodity price inflation than last time, once banks realize there's enough liquidity in the system to avoid defaults. Consequently, in an attempt to avoid short-term collapse, central banks will ensure a much more serious long-term problem and a whole lot of people will get killed as governments get overthrown. In the meantime, we can all do the twist and it will prove to be utterly pointless.

The primary problem is, as always, while it might be really easy to inject liquidity (overnight), there is no plan or desire to reverse the process. Central banks aren't even considering de-liquidifying. Some day they might realize that surplus liquidity causes more problems than it's worth.

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