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Minneapolis Fed's Kocherlakota Down, Two Dissenters To Go Until QE3

Tyler Durden's picture




 

During the last FOMC meeting, we learned that the number of dissenting hawks at the Fed has increased to a whopping 3. Well, make that 2 after Minneapolis Fed's Kocherlakota just basically stuck his tail between his legs. To wit: "the disinflationary pressures of 2010 should soon reappear in the form of a sharp decline in current and expected core PCE inflation rates. In that eventuality, increasing policy accommodation might well be appropriate." One dissenter down, two to go. This also means that as we have been saying forever, all that would take for QE3 is another "deflationary" market flush: not a low-volume algo driven levitation, not a sideways move, a plunge. And when that happens, the Fed will do QE3. The rest is just posturing.

As for the posturing, here is Kocherlakota's irrelevant conclusion:

 

I mentioned that I dissented from the Committee’s last decision in August. Two other presidents dissented—and there have not been as many dissents at one meeting in nearly 20 years. In my view, this level of disagreement reflects two aspects of the current setting. The first is related to the leadership of the Committee. Chairman Bernanke strongly welcomes the airing of disparate views within the meeting. He clearly believes—as I do—that the United States has a decentralized central bank because we will get better monetary policy if decision-making is grounded in a wide range of views. I think that the chairman should be applauded for this approach to policymaking.

 

The second is related to the nature of the economic data that we’ve seen in the first part of this year. I’ve described how inflation rose and unemployment fell. It’s also true that real GDP grew at less than 1 percent at an annualized rate in the first half of the year. And the outlook for real GDP growth has slipped too. Last November, my forecast for annual real GDP growth was similar to that of other FOMC participants: I expected that real GDP growth would average above 3 percent per year, and probably closer to 3.5 percent per year, over the following two years (that is, from the fourth quarter of 2010 through the fourth quarter of 2012). Now, I expect that real GDP growth will average around 2.5 percent per year over that same period of time.

 

It’s unusual to see an increase in inflation and a fall in unemployment occur when GDP growth is so sluggish and when the outlook for real GDP growth has slipped so much. It is hardly surprising that there might well be some disagreement about the appropriate monetary policy response to this conflicting mix of information.

 

As we go forward together on the Committee, I see no reason to revisit the decisions of August 2011. The Committee has included what I regard as a two-year conditional commitment in its statement. I believe that undoing this commitment in the near term would undercut the ability of the Committee to offer similar conditional commitments in the future—and this ability has certainly proved very useful in the past three years. So, I plan to abide by the August 2011 commitment in thinking about my own future decisions. Of course, the case for any additional easing would have to be made on its own merits. And, like the 19th century settlers of the American West, the Committee will have to keep its eye on the future when deciding about the present.

Full Kocherlakota speech.

Communication, Credibility and Implementation: Some Thoughts on Current, Past and Future Monetary Policy

Narayana Kocherlakota - President
Federal Reserve Bank of Minneapolis

National Association of State Treasurers
Bismarck, North Dakota
August 30, 2011

As you just heard, I’m the president of the Federal Reserve Bank of Minneapolis. The Federal Reserve Bank of Minneapolis is one of the 12 regional Reserve banks that, along with the Board of Governors, make up the Federal Reserve System. The Minneapolis bank is the headquarters of the System’s operations in the ninth of the 12 districts. This district is a far-flung one that includes Montana, the Dakotas, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan.

One of the aspects of my job that I enjoy most is the opportunity to visit communities across the Ninth District. I have had the pleasure of traveling to each state in the district in my nearly two years as president, but this is my first trip to Bismarck in that time. I want to express my thanks to the National Association of State Treasurers for this invitation. I also want to extend my thanks to the area business and civic leaders who have taken time from their busy schedules to meet with me today to discuss the area’s economic conditions, as well as those who will join me later this afternoon to tour areas hit by this year’s Missouri River flooding.

The flooding experienced by North Dakota communities—most notably along the Missouri and Souris rivers, but also along other state waterways—has dealt an unfortunate economic setback to many cities in a state that has otherwise experienced very good economic outcomes in recent years. We have been monitoring the economic impact of the 2011 floods at the Federal Reserve Bank of Minneapolis and will continue to do so, in North Dakota as well as Montana and South Dakota. It will be some time before we have a complete reckoning of all associated costs.

However, one thing seems certain: The same cooperative attitude and resilience that has characterized communities’ responses to the flooding suggests that their recovery will be a strong one. In his History of North Dakota, Elwyn B. Robinson cites a late-19th century British statesman, who described the prevailing spirit of optimism of the people who settled west of the Mississippi River: “Men seem to live in the future rather than in the present: not that they fail to work while it is called for to-day, but they see the country not merely as it is, but as it will be, twenty, fifty, a hundred years hence.”2

I’m reasonably confident that Mr. Robinson would view this as an awkward segue, but his quote is also instructive to the operations of monetary policy. The Federal Open Market Committee—the FOMC—meets eight times per year to set the path of monetary policy over the next six to seven weeks. All 12 presidents of the various regional Federal Reserve banks—including me—and the seven governors of the Federal Reserve Board, including Chairman Bernanke, contribute to these deliberations. (Actually, right now, there are only five governors—two positions are unfilled.) However, the Committee itself consists only of the governors, the president of the Federal Reserve Bank of New York and a rotating group of four other presidents (currently Minneapolis, Philadelphia, Dallas and Chicago).

As I said, the Committee meets eight times per year. Its deliberations concern the appropriate readjustment of monetary policy to the new information received since the last meeting. But, as was true of the early settlers of our great continent, the Committee has to keep in mind its medium-term and indeed long-term goals when making those readjustments. And it must also keep in mind the public’s understanding of those goals.

This perspective—that good policy responds to the current conditions so as to achieve certain well-communicated future goals—will be a key theme for the remainder of my remarks. They will be divided into three parts. The first part is about the FOMC’s objectives and my thoughts regarding them. In the second part, I discuss the FOMC’s performance relative to those goals in the past three and a half years since the beginning of the Great Recession. Finally, I close with an analysis of recent FOMC decision-making. Here, my discussion is perhaps a little more disengaged than usual, since I dissented from—that is, formally disagreed with—the last FOMC decision. And here it seems especially à propos to remind you that my remarks here today reflect my thoughts alone, and not necessarily those of others in the Federal Reserve System, including my colleagues on the Federal Open Market Committee.

FOMC Objectives

Let me turn first to a discussion of FOMC objectives. Congress has mandated that the Federal Reserve set monetary policy so as to promote price stability and maximum employment. In my view, the heart of implementing the price stability mandate is to formulate and communicate an objective for inflation. The central bank then fulfills its price stability mandate by making choices over time so as to keep inflation close to that objective. Of course, the central bank’s job is complicated by economic shocks that may lower or raise inflationary pressures. The central bank provides additional monetary accommodation—like lower interest rates—in response to the shocks that push down on inflation. It reduces accommodation in response to the shocks that push up on inflation. By doing so, it works to ensure that inflation stays close to its objective.

As I said, though, it is not enough to have an objective—the Federal Reserve must also communicate that objective clearly. That communication serves to anchor medium- and long-term inflationary expectations. Put another way, without clear communication of objectives, the public can only guess at the intentions of the FOMC. Inflationary expectations and inflation itself will inevitably end up fluctuating—and possibly by a lot. As I’ll discuss later, it is possible to undo these shifts in expectations, but only at significant economic cost.

The Federal Reserve communicates its objective for inflation in a number of ways. For example, at quarterly intervals, FOMC meeting participants publicly reveal their forecasts for inflation five years hence, assuming that monetary policy is optimal. Those forecasts usually range between 1.5 percent and 2 percent per year. They are often collectively referred to by saying that the Federal Reserve views inflation as being “mandate-consistent” if it is running at “2 percent or a bit under.” But the Fed has also communicated its intentions more directly and more broadly. Last December, for example, on the television program “60 Minutes,” Chairman Bernanke explained the dangers of letting inflation fall too low relative to this 2-percent-or-a-bit-under range. In the same interview, he also emphasized that the FOMC is unwilling to allow inflation to rise above this range.3

As I’ll describe in more detail later in my speech, the economy was hit in the past three and a half years by shocks that had the potential to drive inflation significantly downward. I believe that the FOMC’s clear communication of its inflation objective has helped the FOMC keep inflation from falling too low in the face of those shocks. At the same time, clear communication of its objective has also allowed the FOMC to follow highly accommodative monetary policies—like keeping interest rates near zero for nearly three years—without triggering large upward movements in inflationary expectations.

I’ve been emphasizing the importance of communication—and communication matters greatly. But, ultimately, the public’s beliefs about the FOMC’s inflation objective will also depend on inflationary outcomes. If annual inflation averages less than 1.5 percent for more than three or four years, onlookers will begin to suspect that the FOMC’s true objective for inflation is lower than its declared “two percent or a bit under.” Correspondingly, if inflation is persistently higher than 2 percent, then the public will begin to believe that the FOMC’s true objective for inflation is higher than 2 percent. In either case, inflation expectations could become unmoored, and the FOMC could lose control of inflation itself. Communication can only be effective if the FOMC also retains credibility.

As I mentioned, Congress has also mandated that the FOMC set monetary policy so as to promote maximum employment. In the past, some have seen an intrinsic conflict between the FOMC’s price stability mandate and its maximum employment mandate. In contrast, my thinking accords with the more modern viewpoint that there is relatively little tension between these two goals. The modern paradigm recognizes that monetary policy should allow the natural supply-and-demand forces in the economy to operate without impediment. For example, if energy costs spike, the basic forces of supply and demand dictate that firms will cut back on production and demand less labor, creating higher unemployment. It is inefficient for any policy—including monetary policy—to attempt to interfere with this natural adjustment process. It follows that the Federal Reserve’s operational definition of “maximum employment” has to vary over time.

Nonetheless, the modern paradigm does view price stability as playing a crucial role in ensuring maximum employment. It is well-documented that different firms adjust their prices at different times and in different ways in response to the ebb and flow of inflationary pressures in the economy. This asynchronous adjustment of prices across firms generates economic inefficiencies, including losses of employment. By ensuring that prices follow a steady, well-understood path, the Federal Reserve eliminates the variation in inflationary pressures and the need for firms to respond to that variation. In this way, the Federal Reserve’s mission of achieving price stability is entirely consistent with its mission of achieving maximum employment.4

But there is another, deeper sense in which the price stability and maximum employment mandates are intertwined. Imagine that inflation runs at 3 or 4 percent per year for three or four years. The public will then start to doubt the credibility of the Fed’s stated commitment to a 2-percent-or-a-bit-under objective. The public’s medium-term inflationary expectations will consequently begin to rise. As we saw in the latter part of the 1970s, these changes in expectations can serve to reinforce and augment the upward drift in inflation. At that point, the Federal Reserve will have to tighten policy considerably if it wishes to regain control of inflation. But we learned in the early 1980s that the resultant tightening—while necessary—generates large losses in employment. In other words, failing to meet its price stability mandate can also lead the FOMC, over the medium and long term, to substantial failure on its employment mandate.5

An important communications challenge for the FOMC is that it is much harder to quantify the maximum employment mandate than the price stability mandate. I’ve already talked about how a change in energy costs can push down on maximum employment. But changes in minimum wage policy, demography, taxes and regulations, technological productivity, job market efficiency, unemployment insurance benefits, entrepreneurial credit access and social norms all influence what we might consider “maximum employment.” Trying to offset these changes in the economy with monetary policy can lead to a dangerous drift in inflationary expectations and ultimately in inflation itself.

Monetary Policy since the Great Recession

As I discussed earlier, the Federal Reserve is mandated to set policies that promote price stability. With that in mind, how has the Federal Reserve done in terms of its price stability mandate since the Great Recession began in December 2007? The answer is: remarkably well. The personal consumption expenditure (PCE) inflation rate has averaged 1.8 percent per year from the fourth quarter of 2007 through the second quarter of 2011. I would say that this outcome is essentially consistent with price stability.

This admirable performance is not due to luck. Since mid-2006, residential land prices have fallen by over 50 percent.6 Falling land prices were at the heart of the financial crisis from 2007 to 2009 and have generated a persistent fall in wealth and borrowing capacity for households. The associated declines in demand for consumption goods and investment goods pushed downward on prices and inflation.

Confronted with this enormous shock to the economy, the Federal Reserve has followed an unprecedentedly and imaginatively accommodative policy. It has kept interest rates near zero. It has provided “forward guidance” by explicitly expressing its expectation that interest rates would stay extraordinarily low for an extended period. It has bought over 2 trillion dollars of longer-term government securities. Through these actions, the Fed has provided an extraordinary amount of monetary stimulus—and so has been able to meet its price stability mandate. But what about the future? There are a number of ways to measure inflationary expectations, which all—unfortunately—come with caveats. Last December, a Cleveland Fed study analyzed several such measures.7 It concluded that the Survey of Professional Forecasters’ (SPF’s) projections8 tend to forecast relatively well. The most recent SPF survey (conducted before the August FOMC meeting) predicted that PCE inflation would average 2.1 percent per year for the next five years.

Thus, in the face of challenging circumstances, the Federal Reserve has met its price stability mandate and is expected to continue to do so. Unemployment does remain disturbingly high. Yet, I am sure it would be even higher without the enormous amount of monetary stimulus that the FOMC has provided. Moreover, I believe that the FOMC could only have systematically lowered the unemployment rate further by generating inflation rates higher than 2 percent over a multiyear period. Such an outcome could well lead the public to lose faith in the credibility of the FOMC’s inflation objective and thereby increase the probability that the FOMC would lose control of inflation. As I stressed earlier, this scenario would require a policy response that would generate substantial losses of employment.

Recent FOMC Decisions

Much of my discussion so far has been a look back over the past three and a half years, since the start of the Great Recession in December 2007. My assessment is that, despite some profound economic shocks, the FOMC—led by Chairman Bernanke—has successfully met its price stability mandate by engaging in imaginative forms of monetary accommodation and thereby helped lower the unemployment rate. Now I’d like to turn to my assessment of the most recent round of FOMC decision-making. To put this part of my talk in the proper context, I want to ask another key question: How did the FOMC achieve its success over the past three and a half years with regard to price stability?

The answer, I believe, is that the FOMC consistently made choices in response to changes in short-term economic conditions that were designed to support its medium-term objectives. Getting these choices right is certainly more of an art than a science. With that said, economists have suggested a number of rules that tell central banks how to respond to changes in economic conditions so as to keep inflation near some target level. I generally find these rules useful in guiding policymaking, and especially so when they arrive at the same recommendation. (Unfortunately, that’s not always the case.)

But here’s one instance in which most of the rules do deliver the same recommended course of action. Suppose the FOMC observes an increase in available measures of inflationary pressures and a decrease in labor market slack—that is, the gap between maximum employment and observed employment. Then many monetary policy rules would recommend that the FOMC not ease policy further and in fact consider reducing the level of monetary policy accommodation. That recommendation—don’t ease further if you’re doing better on your mandates—makes sense to me.

With that recommendation in mind, let’s go back to November 2010. At that date, the FOMC took a significant policy step by announcing its intention to buy $600 billion of longer-term Treasury securities. Until the most recent meeting in August, this was the last major policy step undertaken by the Committee. What did available measures of inflationary pressures and labor market slack—the “mandate dashboard”—look like back in November?

In terms of inflation, I generally think that core inflation does a better job of tracking underlying inflationary pressures, because it does not include the highly volatile and transitory fluctuations in food and energy prices. In November, PCE core inflation over the preceding 12 months had been less than 1 percent and had decelerated throughout the year. Of course, a good mandate dashboard should also include some measure of the future course of inflationary pressures. Here, it is worth noting that, even with the large-scale asset purchase in place, FOMC participants expected core inflation to remain very low: less than 1.3 percent over the upcoming calendar year of 2011.

In terms of labor market slack, I’ve argued elsewhere that it’s hard to find reliable measures of this key variable.9 But the FOMC statement makes specific reference to the unemployment rate as a gauge of labor market slack, and so I’ll use that measure on my notional mandate dashboard. The unemployment rate was 9.8 percent in November 2010. With the help of the large-scale asset purchase, FOMC participants expected it to fall to about 9 percent a year hence.

How had the mandate dashboard changed in August 2011? PCE core inflation rose sharply: From December 2010 through July 2011, the annualized core PCE inflation rate was over 2 percent. FOMC participants did not submit forecasts of core PCE inflation in August. However, the most recent Survey of Professional Forecasters, done before the August FOMC meeting, predicted that core PCE inflation will average 1.7 percent in 2011 and 1.6 percent in 2012. It seems clear that inflationary pressures were higher in August than in November. My own current forecast for core PCE inflation is even higher than the SPF’s—I expect that it will average around 2 percent per year over 2011 and 2012.

What about labor market slack? The unemployment rate was 9.1 percent in July 2011, as opposed to 9.8 percent in November 2010. Again, we don’t have FOMC participant projections available from the August meeting. However, the Survey of Professional Forecasters predicts that unemployment will be 8.6 percent in just over a year’s time. Going into the August FOMC meeting, my own forecast for unemployment was a little more optimistic, in the sense that I do expect unemployment to be under 8.5 percent by the end of next year. But, even with the more pessimistic SPF forecast, labor market slack is smaller than in November 2010, when the FOMC expected unemployment to remain around 9 percent in a year’s time.

So, measures of past and forecasts of future inflationary pressures were higher in August than at the time of the FOMC’s last major policy move in November. Measures of current labor market slack and expectations of future labor market slack were smaller in August. The monetary policy rules that I described earlier would suggest, again, “Don’t ease further if you’re doing better on your mandates.” Indeed, they’d recommend that the level of policy accommodation be reduced.

Instead, at its August meeting, the FOMC decided to adopt a more accommodative policy stance. From March 2009 through June 2011, the FOMC statement said that the Committee expected to keep interest rates extraordinarily low for an “extended period,” which was generally interpreted as meaning “at least for two or three meetings.” In August 2011, the FOMC changed its statement to say that it now expected to keep interest rates extraordinarily low for at least 16 meetings. Given what I’ve said, it is not surprising that I dissented from this decision.

I would be remiss if I did not mention one subtlety in my discussion of changes in the mandate dashboard since November 2010. I’ve treated the decline in the unemployment rate as representing a decline in labor market slack. This view is not uncontroversial. From an accounting perspective, the unemployment rate can fall for two reasons: People can find jobs, or people can stop searching for jobs. Much of the decline since November is attributable to people who were formerly unemployed choosing to no longer look for work.

Nonetheless, it still seems appropriate to me to view this change in labor market conditions as representing a decline in labor market slack. Intuitively, people who are non-employed, but not actively looking for work, are less likely to apply for any given job opening. Hence, the recent departures from the labor force imply that there is less downward pressure on wages. Almost by definition, from an economic perspective, this means that there is less slack in the labor market.

The rise in core inflation in the first part of the year is consistent with the view that labor market slack has fallen. But some observers argue that core PCE inflation is only temporarily high because of the tragic events in Japan or transitory spikes in commodity prices. If so, the disinflationary pressures of 2010 should soon reappear in the form of a sharp decline in current and expected core PCE inflation rates. In that eventuality, increasing policy accommodation might well be appropriate.

I’ve argued here that the Committee increased the level of accommodation when standard rules seem to call for standing pat or even reducing accommodation. What are the costs of such a move? The standard rules are meant to guide the economy toward the Committee’s medium-term objectives. If monetary policy is consistently overly accommodative relative to these rules, the Committee risks generating inflation higher than 2 percent for several years. As I’ve discussed, such an outcome could have significant consequences for inflation and inflation expectations. Future Committees might have to endure large losses in employment in order to fix these consequences.

Conclusion

I mentioned that I dissented from the Committee’s last decision in August. Two other presidents dissented—and there have not been as many dissents at one meeting in nearly 20 years. In my view, this level of disagreement reflects two aspects of the current setting. The first is related to the leadership of the Committee. Chairman Bernanke strongly welcomes the airing of disparate views within the meeting. He clearly believes—as I do—that the United States has a decentralized central bank because we will get better monetary policy if decision-making is grounded in a wide range of views. I think that the chairman should be applauded for this approach to policymaking.

The second is related to the nature of the economic data that we’ve seen in the first part of this year. I’ve described how inflation rose and unemployment fell. It’s also true that real GDP grew at less than 1 percent at an annualized rate in the first half of the year. And the outlook for real GDP growth has slipped too. Last November, my forecast for annual real GDP growth was similar to that of other FOMC participants: I expected that real GDP growth would average above 3 percent per year, and probably closer to 3.5 percent per year, over the following two years (that is, from the fourth quarter of 2010 through the fourth quarter of 2012). Now, I expect that real GDP growth will average around 2.5 percent per year over that same period of time.

It’s unusual to see an increase in inflation and a fall in unemployment occur when GDP growth is so sluggish and when the outlook for real GDP growth has slipped so much. It is hardly surprising that there might well be some disagreement about the appropriate monetary policy response to this conflicting mix of information.

As we go forward together on the Committee, I see no reason to revisit the decisions of August 2011. The Committee has included what I regard as a two-year conditional commitment in its statement. I believe that undoing this commitment in the near term would undercut the ability of the Committee to offer similar conditional commitments in the future—and this ability has certainly proved very useful in the past three years. So, I plan to abide by the August 2011 commitment in thinking about my own future decisions. Of course, the case for any additional easing would have to be made on its own merits. And, like the 19th century settlers of the American West, the Committee will have to keep its eye on the future when deciding about the present.

Thanks for your attention. I’m happy to take your questions.

 

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Tue, 08/30/2011 - 12:25 | 1615304 darkhorse007
darkhorse007's picture

That's a pair of vagina balls left...

Tue, 08/30/2011 - 12:55 | 1615465 PaperBugsBurn
PaperBugsBurn's picture

hehehe  those two zionists are still at it on that last Isntreal thread

 

shut the fuck up dirty zionist

 

everybody here should read Dope Inc (the book that drove Kissinger crazy) to understand how these drug dealing scumbags (Meyer Lansky was the Mossad/Rothscum) got so much power

Tue, 08/30/2011 - 12:27 | 1615316 razorthin
razorthin's picture

Will take a couple of more dismal data points.  Assclown keepers of the algos might to take the foot off the sailboat fuel pedal though.

Tue, 08/30/2011 - 12:29 | 1615325 Everybodys All ...
Everybodys All American's picture

QE1, QE1.5, QE2, and QE2.5 did not work so we need QE3. The Fed is insane and shamefully inept.

Tue, 08/30/2011 - 12:42 | 1615391 brew
brew's picture

"Let me turn first to a discussion of FOMC objectives. Congress has mandated that the Federal Reserve set monetary policy so as to promote price stability and maximum employment".  

Bullshit (while coughing)...

Tue, 08/30/2011 - 13:45 | 1615580 TruthInSunshine
TruthInSunshine's picture

Kocherlatoka has stated that monetary policy can't fix many of the challenges of this economy.

Either he is lying, or a prudent reader would notice that monetary policy is being cast aside as a seriously limited tool.

Fed's Kocherlakota says deleveraging 'has to take place' Fed's Kocherlakota says using monetary policy to offset medium term movements in Labor force participation would be 'inappropriate'
Tue, 08/30/2011 - 12:29 | 1615326 T-roll
T-roll's picture

Market plunge (Operation QE 3) to commence on Sept 1 in preparation of the next FOMC.  Day traders can bet on the stock market rising today and tomorrow regardless of any bad news presented.  Friday will be bloodbath (non-farm payroll).  The market will probably save the worst drop for the day after Obama speech on his "jobs plan".

Oh, and you can also look for another CME hike as Gold is getting up there again.

Tue, 08/30/2011 - 12:30 | 1615328 Id fight Gandhi
Id fight Gandhi's picture

We still need a market flush before this qe3 can be sold. A decent pullback not this buy and front run up 10% a week shit.

Fuck, oil is about $90 again and it's all spec, no demand. Gas prices never fell from the spring run up, here's to $5 gas at Christmas.

Tue, 08/30/2011 - 12:37 | 1615367 dracos_ghost
dracos_ghost's picture

Going into a holiday weekend. Managers want to be net neutral. Since, as ZH has stated before, Short Interest at extreme high levels so they will cover and run to the beach for the long weekend. I'm looking for sideways to down chop for the next week or so until the "Official QE3" announcement.

There is no way Fed leaves Obama hanging in the wind going into an election cycle. The Fed has the crew they want in DC.

It's going to be a Viagra algo. Friggin disgusting.

Tue, 08/30/2011 - 13:20 | 1615559 SheepDog-One
SheepDog-One's picture

QE is very unpopular, most people now see it as a failure, and only benefitting Wall St as their own conditions worsen.

Tue, 08/30/2011 - 13:43 | 1615665 dracos_ghost
dracos_ghost's picture

I just remember this July 4th talking about this stuff at a friends BBQ(a good portion Wall Street types). Everyone was loving life that their 401(k) was back to 2008 levels or that their AUM was up and they could resume weekly Barbados trips from the fee boost. They could care less about all the systemic financial cancer rattling about and that the uplift in assets was just the biggest duct tape job in human history. Ignorance is bliss and all that.

Don't get me wrong, I personally think QE3 is just refuggindiculous. But I'm just another crusader screaming at the dark. Too many geopolitical time bombs going into 2013 not to prop up the markets at this point.

Tue, 08/30/2011 - 12:31 | 1615335 Dick Darlington
Dick Darlington's picture

And the daily dosage of msm bs is finally here:

http://www.bloomberg.com/news/2011-08-30/u-s-stock-futures-decline-as-3m...

U.S. Stocks Erase Retreat as Companies Linked to Economic Growth Advance

lololololoooool

Tue, 08/30/2011 - 13:22 | 1615566 SheepDog-One
SheepDog-One's picture

'Stocks advance as they stop going down and start going up'....WOW THANKS MSM!

Gee and stocks were down SO much too! At one point the DUH almost down -70? Whoa!

Tue, 08/30/2011 - 12:31 | 1615336 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

I was always in the "they'll do QE to infinity" crowed, but now it actually comes to it I can't believe its come to this. I mean this is really the end of the world now isn't it...

Tue, 08/30/2011 - 12:31 | 1615337 alien-IQ
alien-IQ's picture

if only the general public understood what is being done to them.

if they only understood one thing, it should be this: that when they are out of work and struggling, if the fed sees their cost of living going down, they will do all they can do to devalue the currency so that their cost of living goes up because that's good for wall street.

if they learned only that today...I suspect that all banks across the nation would be set ablaze before the night is over.

Tue, 08/30/2011 - 12:32 | 1615341 Robslob
Robslob's picture

I really can't see that the Goldilocks economy...or market has plunged? 

 

Is even for the year a plunge?

 

Maybe the algos should learn front running the Fed without prior consent can be hazardous to your vacuum tubes...?

Tue, 08/30/2011 - 12:41 | 1615385 SheepDog-One
SheepDog-One's picture

I see no plunge, in fact markets are looking rock solid and totaly calm only down 10%-15% from their all time record highs.

Yet under the surface, heroin junkie markets are squealing for MORE MORE MORE!!!

I think the few week ago market 'turmoil' was a test run, and a total flop which had to be totaly rescued by the FED and propped back up...any market plunge is met with huge selling pressure and theres no way they can control it.

So here we're left in Bizarro world where markets are totaly fine, yet begging for more free injections of smack.

Tue, 08/30/2011 - 13:06 | 1615515 Tortfeasor
Tortfeasor's picture

What's your take on a QE3 annoucement in September?  Yea or nay?

Tue, 08/30/2011 - 13:11 | 1615531 SheepDog-One
SheepDog-One's picture

I think the days of trillions in QE are over, the currency cant bear it! And in another post I said IF a QE announcement is made that is their signal its over and theyre pulling the structure.

Tue, 08/30/2011 - 12:32 | 1615342 static
static's picture

 

He obviously thinks QE2 worked ..even after stating:

"It’s unusual to see an increase in inflation and a fall in unemployment occur when GDP growth is so sluggish and when the outlook for real GDP growth has slipped so much".

which clearly shows it didn't

 

Tue, 08/30/2011 - 12:32 | 1615343 alexwest
alexwest's picture

sure...

## the disinflationary pressures of 2010 should soon reappear in the form of a sharp decline in current and expected core PCE inflation rates. ##

 

look at commodities  complex today... all up,, i think whoever is bidding for energy didnt read assholes from FOMC about 'disinflationary pressures'

what a bunch of losers.. who is this fukcing idiot.. ? why does he even in FOMC.. his name look like an Indian.. probably he is also big lover of dead bodies in filthy  river of Ganga

alx

Tue, 08/30/2011 - 12:33 | 1615350 101 years and c...
101 years and counting's picture

Q: when did deflation become the enemy?

A: 1913.

Tue, 08/30/2011 - 12:36 | 1615355 SheepDog-One
SheepDog-One's picture

QE3 will in fact be the implosion trigger, so 20 days into September is what we have left then. 

Giant Squids calls for a 'MASSIVE QE3'...overnite prices will go thru the roof and the dollar will completely collapse, being on full life support as it is already. So really the FED's only answer is 'Implode the structure, pull it'...9-11 lingo.

Tue, 08/30/2011 - 12:39 | 1615370 slaughterer
slaughterer's picture

See what $1-$2m in PigMen fiat gets you?  Kocherlakota: from dissenting hero to complying zero in two-three weeks time.  Just two more to buy off for a nice consensus on Sept. 20-21.  Incredible ROI here.   

Tue, 08/30/2011 - 12:39 | 1615372 Dr. Engali
Dr. Engali's picture

Translation: China doen't want our paper so we have to buy it. Get your gold and silver now before it's too late.

Tue, 08/30/2011 - 12:43 | 1615397 SheepDog-One
SheepDog-One's picture

Yep, that basically is the condensed version of this article- 'No one is buying our debt anymore so we need QE to become the exclusive monetizer buyer of all our debt'.

Tue, 08/30/2011 - 12:42 | 1615375 MoneyWise
MoneyWise's picture

"all that would take for QE3 is another "deflationary" market flush" You don't get it, excessive liquidity is still in the system from previous QE1-2.

Check commodity prices is that looks like Deflation for
ya?? Corn, Beans near 2007-08 highs..

Keep bitching about: Markets going higher.. Manipulation and sh*t.. And don't need no QE for that. If they like stock prices 3 month ago, now they look even better. Besides FED won't do exactly the same this time, if anything. BTFD for DOW 14000.. Or keep shorting SPRD, which is 3$ above when you call for $2 price target :))))

Tue, 08/30/2011 - 12:45 | 1615406 SheepDog-One
SheepDog-One's picture

Right, they cant flush the markets because its all fake.

So now youll chase stocks higher, which still wont even keep up with the dollar collapse, after transaction fees and cap gains taxes youll have a loss no matter what.

Tue, 08/30/2011 - 12:42 | 1615381 dwdollar
dwdollar's picture

"It’s unusual to see an increase in inflation and a fall in unemployment occur when GDP growth is so sluggish and when the outlook for real GDP growth has slipped so much. It is hardly surprising that there might well be some disagreement about the appropriate monetary policy response to this conflicting mix of information."

Haha...  Only if you don't read history is it "unusual" and a surprise.

Tue, 08/30/2011 - 12:49 | 1615400 alexwest
alexwest's picture

cant stand those  guys.. they still live and die by  stupid works of that fag Maynard Keynes..

##

 It’s unusual to see an increase in inflation and a fall in unemployment occur when GDP growth is so sluggish and when the outlook for real GDP growth has slipped so much.

##

 

it seems its been  engraved in their stupid little brains that cant be inflation w/ high unemployment ..

i cant understand why its so hard to understand that inflation has nothing  to do unemployment..

people are being fired because of cost of almost everyhing that is dig out of earth is way way way up.. ITS CALLED COST OF PRODUCTION.. businesses cant pass along that incraeses , so in short run people get fired (cause its too cost of production) , but if you fire people, they cant consume so it  vicious cycle.

WHY COST OF PRODUCTION IS UP.. ??cause FED PRINTS MONEY,  CAUSE OMA-MA BAILS OUT HIS BUDDIES ON WALL STREET, CAUSE COST OF MONEY IS ZERO, SO COST OF SPECUALTION IS ZERo...

why is it so hard to understand? if you run up cost of basic stuff,, cost eventually move down the chain of consumption.. how long can you live w/out IPADS ( forever, i dont have one), what about food/gas.. probably couple days..

 

mother#uckers

alx

Tue, 08/30/2011 - 12:46 | 1615409 buzzsaw99
buzzsaw99's picture

A bunch of blather that basically boils down to the fed targeting banker bonuses. At least with Bush II some of the money made it to the people once in awhile.

Tue, 08/30/2011 - 12:46 | 1615411 Subprime JD
Subprime JD's picture

Fuck kocherlakota what a pussy. Ouuuu disinflationary pressures waaa waaa cry me a fucking river u bitch

Tue, 08/30/2011 - 12:54 | 1615457 Tunga
Tunga's picture

Transitory disinflationary suppositories all around. AHHHHH! That's the ticket.

Tue, 08/30/2011 - 12:55 | 1615459 narnia
narnia's picture

they might as well short every point on the Treasury yield curve up 100 bps and just start buying residential real estate at 100% of the TBTF & state pension fund's fully loaded investment + phantom accrued interest.  they are going to own the assets in the long run anyway & this will undoubtedly spark the inflation they want.

Tue, 08/30/2011 - 12:56 | 1615470 adr
adr's picture

The stock market in no way represents the real economy. It only serves to concentrate wealth in the hands of a select few who are in no need for more paper. When the crusty class hears of impending inflation they only understand that they need to confiscate more wealth in order to prepare for it. Buffett knows Fed policies will produce massive inflation but he has the means to position himself to benefit from it. The Wall Street elite class and the academics do not care about inflation because they can easily afford $10 a gallon gas and $15 ground beef. After all thier paper wealth will increase far beyond the increase in commodity costs.

In the real world retailers are scared stiff. Auto dealers are freaking out because they know they are going to need to liquidate the inventory they were forced to take.  got a letter from my local dealership telling me they will give me the retail value for my car on trade and with incentives i can get a new $20k car for $1000. They are willing to take in a trade and make no money on it just to get a new car off the lot.

Imagine what will happen to GM dealers when they need to ship 500k Cruzes off in one month. My local Chevy dealer is offering 0 down $99 36 month leases on a Cruze. In three years GM is ging to take a bath on the used inventory that comes rushing in.

Have you seen Best Buy, they haven't brought in a new model TV since May and are selling $2500 TVs for $1000. The real economy looks worse than 2008 but the Wall Streeters can only see the free money they hope comes their way because it will cause the cmmodity they buy to increase in value at the peril of all those people who actually matter.

Tue, 08/30/2011 - 12:59 | 1615489 search
search's picture

The Fed used to have mystique, and now it looks like some tired monkeys and a dirty football. QE only works with hope, and the Fed is shouting for Fiscal action because itself is hopeless.

Tue, 08/30/2011 - 13:05 | 1615510 SheepDog-One
SheepDog-One's picture

The boy who cried TARP and QE 1,2, is now crying again and it wont do a damn thing. Money to bankers, while the country implodes in on itself.

Theres no one left to fool.

Tue, 08/30/2011 - 13:10 | 1615527 Cursive
Cursive's picture

He clearly believes—as I do—that the United States has a decentralized central bank because we will get better monetary policy if decision-making is grounded in a wide range of views. I think that the chairman should be applauded for this approach to policymaking.

 

You wouldn't give your view unless you were allowed to give your view?  Clearly these pussies are not cut out for Fight Club.

Tue, 08/30/2011 - 17:35 | 1616664 nohweh
nohweh's picture

"..a decentralized central bank".  After reading that, I  gave up on the rest of this newspeak double-think. Don't think I missed much.

Tue, 08/30/2011 - 13:13 | 1615534 Die Weiße Rose
Die Weiße Rose's picture

Yesterday (Monday) the US market went up

as the FED pumped more POMO QE2 US3.15 billion into the Market,

http://www.newyorkfed.org/markets/pomo/display/index.cfm

and in the last 2 weeks the FED issued Auctions for 280 billion in US Debt at or below 1% interest.

http://www.treasurydirect.gov/RI/OFGateway

 Now I would call that a major US Federal Reserve Stimulation and/or Quantitative Easing Operation...

most of you seem to have missed that, because you seem so fixated on QE3 that you forget that QE never really stopped.

This is what stimulus hopium addiction does to People,

it makes them lose all sense of focus and reality....

 

Tue, 08/30/2011 - 13:13 | 1615536 mynhair
mynhair's picture

Can I haz a plunge, pleez?

Tue, 08/30/2011 - 13:16 | 1615544 SheepDog-One
SheepDog-One's picture

I dont believe they can have a plunge without the next day staging a full recovery plus some more. Last time they did it a few weeks ago I think they saw disaster, any plunge met with huge selling so their only option was to recover it immediately. 

Tue, 08/30/2011 - 13:18 | 1615538 SheepDog-One
SheepDog-One's picture

QE at this point is suicide for Obunghole, dont foget that aspect in all this, he's already looking at very bad numbers on his watch. He wants to stick around there? Then no QE, or impose martial law and martial presidency. 

Thats all.

Tue, 08/30/2011 - 13:30 | 1615600 slaughterer
slaughterer's picture

Ogolfer is working on his Roosevelt-style stick-save bailout of under-water homeowners for September speech. Nobody told him at the 18th hole green that he has no $$$ or political support to fund any fiscal stimulus whatsoever.  Oh well, at least it will look as if he cares to his future voting public...   

Tue, 08/30/2011 - 13:23 | 1615572 drswhaley
drswhaley's picture

No coincidence here - Obama in Minneapolis for a speech today - did he meet with Kocherkolata last night and give him a talking to?

Tue, 08/30/2011 - 13:31 | 1615608 slaughterer
slaughterer's picture

"Look, Dr. Kocherkolata, let me make this clear..."

Tue, 08/30/2011 - 13:31 | 1615607 Racer
Racer's picture

I really really wish  inflation was just high for all the things I buy let alone medium!

Tue, 08/30/2011 - 13:35 | 1615626 Sequitur
Sequitur's picture

So, let's get this out of the way. When does Q.E. 4 drop?

Tue, 08/30/2011 - 13:37 | 1615631 Sutton
Sutton's picture

Gasoline is still 4 bucks.

And food at the shelf is as high as ever.

Fuck these guys.

Tue, 08/30/2011 - 13:51 | 1615702 firefighter302
firefighter302's picture

Keep Stacking.

Tue, 08/30/2011 - 14:26 | 1615906 I Got Worms
I Got Worms's picture

I took 5 silver Kookaburras out of circulation during my lunch break. Just doin' my part.

Tue, 08/30/2011 - 13:53 | 1615713 silver500
silver500's picture

The other two leave the FOMC in December...

 

http://www.federalreserve.gov/monetarypolicy/fomc.htm

Tue, 08/30/2011 - 13:55 | 1615723 rampancy777
rampancy777's picture

Im not a formally trained economist so everything I come up with is probably crap but wasn't more QE set in stone the second that they increased the debt ceiling? if debt = money supply, how can there be no QE3 in some form?

Tue, 08/30/2011 - 14:16 | 1615842 dfornika
dfornika's picture

Normally there would be a wide range of investors interested in buying U.S. government bonds, so they could borrow money (sell bonds) without 'quantitative easing.' Now that the demand for U.S. debt has decreased, they need to resort to the Federal Reserve buying those bonds.

Tue, 08/30/2011 - 14:21 | 1615871 12ToothAssassin
12ToothAssassin's picture

So now Im just saving all my extra cash in my mattress for the day QE3 is announced and Gold falls off a cliff. Got it.

Tue, 08/30/2011 - 15:01 | 1616051 gkm
gkm's picture

And subprime is contained.

Tue, 08/30/2011 - 19:29 | 1617017 razorthin
razorthin's picture

Bet this guy founded the First Kocher-Lakota Bank.  Bullion can enter, but it can never leave.

Tue, 08/30/2011 - 22:17 | 1617574 janus
janus's picture

quote from janus's preacher (from back when he still attended church):

"committees are collections of the incompetent; formed by the indifferent; to accomplish the unnecessary."

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shacai's picture

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