Lies, Damned Lies, And Pianalto's QE/Deleveraging Lies

Tyler Durden's picture

We tried to bite our tongue; we ignored some of the sheer hypocrisy of Cleveland Fed's Sandra' oh Sandy' Pianalto (that QE2 was a definitive success in 2010 but now LSAPs require more analysis of costs and benefits); but when she started down the road of praising the US consumer for deleveraging we had enough. In the immortal words of John Travolta: "Sandy, can't you see, we're in misery" as while she notes consumers cutting back on credit card debt (due to forced bankruptcies we note), Consumer debt has only been higher on one month in history! Soaring auto loans and student debt should just be ignored? There is no deleveraging - Total US Consumer debt is 0.23% from its all-time high in mid-2008, and will with all likelihood break the record at the next data point. Meanwhile her speech, so full of careful-not-to-over-commits can be summed up by the world-cloud that shows the six words most prominent: 'Monetary Policy', 'Financial Conditions', and most importantly 'Credit Economy'. Here's the deal: Consumer Debt is Consumer Debt.

Total Consumer Debt - there's your deleveraging!!!


and the simple analysis of her speech this morning:




Full speech can be found here:, but these sections stood out to us:


The Federal Reserve and Monetary Policy


It takes time for our monetary policy actions to affect the economy, so our policy decisions have to be forward-looking. And that is exactly why participants around the FOMC table bring their economic projections to the discussions.


The initial large-scale asset purchase program, which is commonly called quantitative easing, or QE, was announced in the midst of the financial crisis in 2008 and has been extended and expanded several times since then.  As a result of these programs, the Federal Reserve's balance sheet has grown from about $900 billion before the financial crisis to nearly $3 trillion today.

In addition, we have been adjusting the composition of our balance sheet by selling short-term Treasury securities and purchasing an equivalent amount of longer-term Treasury securities. We have also stepped up communications to the public about the future path of interest rates. The FOMC's most recent statement indicates that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through 2014.

And yet, even with the aggressive and extraordinary actions that the FOMC has taken, we remain in a frustratingly slow economic recovery.  Our economy is still struggling to build momentum almost five years after the Federal Reserve first began to ease monetary conditions..  To understand why our recovery has been so sluggish, one of my Bank's economists has examined economic recoveries in the United States going back to the 1890s.  His work concluded that the deeper the recession, the faster the snap-back, even when the recession was sparked by a financial crisis. However, he found two exceptions to this pattern: the Great Depression and this current period.  His analysis strongly suggests that the collapse of the housing market, which wiped out more than $7 trillion of household net worth, has been a key barrier to a stronger expansion.

Many households had increased their net wealth during the boom period by taking on a lot of debt to finance the purchase of their homes, which increased in value.  When the housing bubble burst, the value of their homes fell, but their debt obligations remained.  Hence, these households were quite suddenly worse off -- literally less wealthy -- than they previously had been on paper.  In response, households have stepped up their saving to rebuild the net worth they lost during the housing market collapse, and in the process, they have scaled back on their spending.



As consumers have adjusted to becoming less wealthy, their attitude toward debt in general has changed.  My Bank's analysis shows that at the beginning of 2011, the average consumer had fewer open credit accounts than at any time in the past dozen years. This trend appears to be driving an overall reduction in the number of bank cards held by the public. Consumers are using fewer credit cards, and they have been paying down the balances on their credit.  More than half of all U.S. consumers now have just one credit card or none at all, and most of that decline reflected consumers closing their bank credit card accounts. In just four years, between 2007 and 2011, the percentage of people with no bank cards increased from about 18 percent to 24 percent.  Moreover, even though lenders have denied credit to some consumers, my Bank’s study indicates that most of the reduction in credit card usage has come as a result of choices made by consumers – not lenders.


While consumers have been cutting back on credit card debt, they have shown a willingness to borrow money to buy cars.  Cars in the U.S. are getting relatively old; indeed, the average age of the auto fleet in our country is at a record high. In addition, lenders increasingly have been willing to extend credit to purchase cars on favorable financing terms.  As a result, the automotive sector is a bright spot in the economic picture.

That said, a stronger economic expansion is going to require significantly more support from consumers and businesses. 



Monetary policy should do what it can to support the recovery, but there are limits to what monetary policy can accomplish...

There are benefits to further monetary policy actions, but we have to be realistic about what those benefits will be, how large those benefits will be, and how other factors will help or hinder the effectiveness of those benefits...

Let me be more specific about the benefits and costs.  By benefits, I mean the ability of our policy actions to move the economy closer to our goals of stable prices and maximum employment. By costs,I mean the potentially adverse effects that our policy actions might impose on financial markets and the economy.  These benefits and costs are not always easy to identify and estimate.  We use economic theory to guide our thinking about the many ways in which our policy actions could affect the economy and financial markets.  We then try to estimate the magnitude of these effects, relying on models based on historical experience.  We are fortunate that we have not experienced many economic hardships as severe as this last recession, but the lack of experience means that we can only generate very rough estimates of the likely costs and benefits of our actions.


So, large-scale asset purchases can be effective. But our experience with these programs is limited, and as a result, they justify more analysis.  For example, as the structure of interest rates has moved lower over time, it is possible that future large-scale asset purchase programs will yield somewhat smaller interest-rate declines than past programs. A related issue to evaluate is whether further reductions in longer-term interest rates would stimulate economic activity to the same degree as they have in the past.

Let me now turn to some of the potential costs. It is conceivable that, at some point, policies designed to promote further declines in rates could interfere with financial stability. Some financial institutions find themselves challenged today by the low-interest-rate environment, and they might take actions to remain profitable that could affect risk in the financial system. One possible response to these conditions is that financial institutions could take on excessive credit risk by "reaching for yield."  At the same time, financial companies could keep prudent credit standards but still suffer significant losses if they were holding too many fixed-rate, low-yield assets when market rates began to rise.

Finally, it is also conceivable that, at some point, the Federal Reserve's presence in certain securities markets would become so large that it would distort market functioning.   It is important to have good estimates of how large the Federal Reserve's participation would have to be to cause a meaningful deterioration in securities market functioning, and to better understand the potential costs of such deterioration for the economy as a whole.

The bottom line is this: I am supportive of actions that provide economic benefits with manageable risks. The FOMC's policy actions to date have been important economic stabilizers and have acted to support the expansion. Yet today, we still find ourselves in a challenging economic environment – one in which we continue to rely on nontraditional policy tools. These new tools come with benefits and with risks…and we must constantly weigh both in our efforts to meet our dual mandate of maximum employment and stable prices.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
SeverinSlade's picture

What a fucking joke.

Speeches like these though only further clarify the fact that the Fed isn't accidentally incompetent but is INTENTIONALLY incompetent. 

diogeneslaertius's picture

intentionally acting as a valve and node/throughput mechanism for the greatest fraud the world has ever seen: waterloo 2.0 on a global scale as the NWO buys up the entire planet for pennies on the fiat instrument they ... oh, why bother, you all know the story already.

SeverinSlade's picture

As idiotic as Keynesians may be, we at the end of the day have to realize that they are not that stupid and know exactly what they're doing.  QE didn't work...Everyone knows it didn't work.  Yet these bankster fucks continue to pretend that it did.  They continue to pretend that the consumer has deleveraged (which, even a two year old can tell hasn't happened looking at the above charts).  They continue to pretend that debt can magically fix a debt problem (if that were true, then a meth addiction could be solved simply by massively increasing the dosage).  The Federal Reserve, ECB, and all other CBs are being run by very evil men and women who are intentionally destroying a monetary system that is 100% based on fiat currency (and with it, a global society whose foundation is built upon that fiat system).

trebuchet's picture

That graph shows TOTAL debt. 


Debt to GDP - as every Keynesian knows - is what matters   :P

Manthong's picture

“we at the end of the day have to realize that they are not that stupid and know exactly what they're doing”

Lew Rockwell put it pretty straight on Puplava this weekend.. “ Keynesianism is the economics of state power”.

Yes, they know exactly what they are doing.

slaughterer's picture

She is on to something: the only answer is QE3.  Isn't that what she said?

dolph9's picture

These jokers are doing the best they can, but in general they're clueless.

It's all about perception management and avoiding panic.  Keep the sheeple away from gold and silver, keep them consuming and adding debt while patting them on the back for being patriotic Americans who are contributing to economic "growth," which will deliver a utopia on Earth...any day now, we promise!

Jlmadyson's picture

QE ain't going to boost shit save a few pockets of the ultra elite.

What has QE bought so far? Time.

And that is the real reason you need a 3rd dose.

You have ran out of time, again.

diogeneslaertius's picture

QE ain't going to boost shit save a few pockets of the ultra elite.





Shigure's picture

In the UK -

"Report shows wealthy do 240 times better out of QE than the poor"

q99x2's picture

I say get all the debt you can. No moral person will ever pay a bank back.

MiltonFriedmansNightmare's picture

Careful now, because they *will* come after you, guns ablazin....

fonzannoon's picture

This market stinks like a dead fish.

Panafrican Funktron Robot's picture

"and we must constantly weigh both in our efforts to meet our dual mandate of maximum employment and stable prices."

Gets me every time lol

SeverinSlade's picture

Fed is failing big time on "stable prices."

Everyone in Congress always loves to bash Bernanke for failing at half of his dual mandate (the maximum employment side).  But why doesn't anyone in Congress (besides Ron Paul) ever hold the Chairsatan accountable for failing at the other half of that mandate?

TrustWho's picture

Are you Muslim? They know how to control their cunts.

diogeneslaertius's picture

john pilger's war by other means



lololol we are through the looking glass people, cats and dogs, sleeping together: MASS HYSTERIA

Hedgetard55's picture

What a load of happy horsehit. She is stupider that Janet Yellen, and that is damn stupid.

max2205's picture

They've blow so much smoke and mirrors up our butts that we can now do our own medical check ups

diogeneslaertius's picture

accidently being the key mechanism of fraud on a scale the world has never seen?

planned deindustrialization of the west as per endless reams of shit

go read some manly p hall and albert pike for the metaphysics


in the sea logistic swim
get to know the architects
of control, do not neglect
your enemy – but Study Him

TrustWho's picture

Who the hell gave these arrogant eggheads this power?

This really bites me when they say: "It takes time for our monetary policy actions to affect the economy"

If this is true and they started a new purchase program (Twist II) in June, how the hell can they be promoting another QE program in August/September?

Second bite me: If the Fed's forecasting skills is so accurate, why did they fail to predict the housing crisis and use their great tools in 2004/05 so we never had to deal with this Great Recession/Depression.

Somebody needs to take the car keys from these arrogant SOBs before they crash the system. Ooooopppps, I guess too late.

Non Passaran's picture

> the immortal words of John Travolta: "Sandy, can't you see, we're in misery" 

How about "Sandy, would you mind not shooting at the thermonuclear weapons?" (Broken Arrow)

Brazillionaire's picture

That part about monetary policy doing what it can to support the recovery... when does this "recovery" thingy start? Is everyone invited? George Clooney gonna be there?

Jlmadyson's picture

See this all part of the "communication" strategy.

If they plug in recovery into every speech, every text, every PR, and your morning bowl of lucky charms the non-recovery will magically turn ino the best recovery of all time.



Cult_of_Reason's picture

She is Exhibit-1 as to why we must end the Fed.

CharliePrince's picture

panderer to power.....a must read about the dope it cheap. the guy makes one ill

Jason T's picture

  "To understand why our recovery has been so sluggish, one of my Bank's economists has examined economic recoveries in the United States going back to the 1890s.  "

talk about not having a freaking clue here.



q99x2's picture

From Mike Shedlock's site:

SNAP Facts and Figures

  • In the last four years the number of participants increased by 64.7%
  • In the last four years the program cost is up by 114.4%
  • Since 2000, the number of participants is up 170%
  • Since 2000, the program cost is up by 395%


DavidC's picture

'How can you be so obtuse?'


Bay of Pigs's picture

"I am supportive of actions that provide economic benefits with manageable risks"

LOL. Get.The.Fuck.Out.

debtor of last resort's picture

Of course there's no deleveraging. Muppets ain't muppets anymore. They have joined the ponzi, but in a clever way.


EDIT: and they don't even know it.

geewhiz190's picture

corporate debt growth has also been explosive with a major portion of it being low rated crap which the public can't seem to buy enough of(the cdos of today). with the FED at 50:1, overall leverage of consumer/corporate/government has to be at levels worse than 2008

TWSceptic's picture

Sandra, do yourself and everyone else a favor; quit your worthless counterproductive job, and get a real one.

Whoahthere's picture

She wouldn't know what a real job is.  All of these propagandists need to be removed from our daily lives and never heard from again.  Certain FEMA Camps have been declared "operational" as of a few weeks ago.  Let's fill 'em up with all the real crooks, thieves, pimps and whores.

YesWeKahn's picture



We should all stop working, all we need is to print money to boost GDP, I am wondering why those idiots invented so much stuff such as computer, flight, TV, etc, all we ever needed was some Bernanke and his penis.

JR's picture

"As consumers have adjusted to becoming less wealthy" Cleveland Fed's Sandra 'oh Sandy' Pianalto

Translation: The good news is, the people are beginning to live with their chains.

“If ye love wealth better than liberty, the tranquillity of servitude than the animating contest of freedom, — go from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains sit lightly upon you, and may posterity forget that ye were our countrymen! – Samuel Adams

Meesohaawnee's picture

im gonna steal Kornhulio's thunder... Bullish

Duke Dog's picture

The only tv I watch anymore, other than Investigation Discovery Channel, is Judge Judy three days a week on my cardio workout days on the elliptical machines. If you want to know where all that student loan money is going, you should watch for a couple of days. Fking amazing - the money isn't going to the colleges and book publishers, but mainly to bailbond operations, cell phone companies, and used car dealers as downpayments.

The vast majority of that money is gone baby, right down the big black hole, LMAO.

Whoahthere's picture

Can't stand Judge Judy's myoptic far left liberal lunacy in regard to gun rights.  Any and all cases she hears having anything to do with guns is an automatic loser.  Now that's what I call fairness in our pseudo-judicial system.  Someone should make her take a gun class and learn to use 5 different caliber of rifles and handguns for 1 year.  Spineless putz.

Duke Dog's picture

I can't stand the bitch either on general terms - haven't watched her that long and haven't heard her on any gun related issues. Her treatment of men in general is horrible - cannot imagine being married to someone like that. However the choices for watching at the gym during the time I go is either that or two screen of Fox News, one of Fox Business, two of the History Channel (transformed into nothing but Ghost/paranormal and UFO Bullshit), and a shopping channel.

I wish ZH had a channel :)

Savyindallas's picture

Judy is a worthless POS -like barbara Walters  -she's there because of her ethnicity

Whoahthere's picture

Barbara Walters is there because of her vagina. Backside talent.

Totentänzerlied's picture

No deleveraging? *SHOCK*HORROR* Who could possibly have predicted this!?!? How else do you explain the reality-defying existence of the US retail and consumer goods industries???

Turn off the credit-money flow to consumers and the charade ends tomorrow when 50 million people find they can't roll this month's credit card debt over (at 10%-25% APR) to next month.

The situation is simple, deleveraging would be the fiscally responsible thing for consumers to do, but, they neither can afford to nor have any desire to. From the 1970s to the early 2000s, in my opinion, they had the ability but not the desire. Now they have neither.

QEN+1 is assured, trying to time it, while entertaining, is a fool's errand.

JR's picture

Research undertaken at the Federal Reserve Bank of New York suggests that consumers worry about the burden of their debts only when they suffer a loss of income or are starved of access to additional credit. This helps to explain why personal consumer spending seems to be relatively unaffected by the rise in the debt service burdens of so many households. Personal credit quality can deteriorate for a long period before latent problems reach the surface. -- Peter Warburton, Debt and Delusion (1999), p. 174

And the debt delinquencies just roll on and on…

khakuda's picture

Sandra:  Hint.  You groupthink guys are nuts.  The economy is growing slowly, inflation is positive, oil is $100, unemployment has come down, the S&P is over 1400 and even housing looks to have bottomed for the time being.  Consider yourselves very lucky.  If you go even further all in now, what will you do if things actually get really bad?  Print $10 trillion?  $100 trillion?  That is game over, and you are so close, it's scary.

AcidRastaHead's picture

Uh Well-a well-a well-a huh. Tell me more, tell me more.

Chief_Illiniwek's picture

"Consumer Debt is Consumer Debt."


Wait... I don't get it.

max2205's picture

Cars for clunkers coming to you right after Obbamerama swears in.

dottjt's picture

This is misleading. I agree we're all fucked etc. However consumer debt isn't total debt. Total debt is coming down, particularly in private debt. With that said, the sentiment is there. With government and consumer debt rising, good luck America getting through 2013!