Presenting The Good, Bad, And Nuclear Options For The Fed

Tyler Durden's picture

While some have talked of the 'credit-easing' possibility a la Bank of England (which Goldman notes is unlikely due to low costs of funding for banks already, significant current backing for mortgage lending, and bank aversion to holding hands with the government again), there remains a plethora of options available for the Fed. From ZIRP extensions, lower IOER, direct monetization of fiscal policy needs, all the way to explicit USD devaluation (relative to Gold); BofAML lays out the choices, impacts, and probabilities in this handy pocket-size cheat-sheet that every FOMC member will be carrying with them next week.


The Fed's Arsenal


BofAML: Stage 3: Nuclear options

Nuclear options, by definition, are large scale approaches that are employed to lift “animal spirits", confidence or inflation expectations by credible means. As we noted before, they are unlikely to be adopted unless the economic outlook deteriorates dramatically. We would expect all of these measures to lead to a rise in TIPS breakevens and inflation risk premiums, resulting in a steepening of the long end of the Treasury curve. We discuss market implications of each of these options in detail below.

1. Imposing a ceiling on yields

The Fed could resort to targeting Treasury or MBS yields by committing to maintain long term yields at or below a certain level for a specified period of time. For example, the Fed could announce that it intends to buy Treasury securities in order to maintain 10y Treasury yields below 1.25% over the next two years. Such a move, which would be an unrestricted commitment to expand the balance sheet, has been suggested by Bernanke as an antidote to deflation in the past2. We believe that the Fed would choose a below-market rate since the aim would be to provide net new stimulus.

In our view, the Swiss National Bank (SNB) decision to announce a floor on EUR/CHF at 1.20 last August – shortly after it had traded as low as 1.03 – serves as an interesting case study. The spot exchange rate has traded consistently above the 1.20 floor and 1m implied vol on the EUR/CHF currency pair has fallen from a peak of more than 27 last August to just 2.4 currently, suggesting the floor is seen as credible, at least in the short term (Chart 16). However, this has come at great cost: since July 2011 the SNB’s FX reserves have increasd by 190bn francs (or 82%) to approximately 240% of GDP (Chart 17).

Market implications

  • We would expect 10y yields to rally slightly below the ceiling set by the Fed. However, we are more skeptical that yields would rally to levels significantly lower than the ceiling, as higher inflation risk premiums and a positive stock market reaction should be limiting factors.
  • The curve reaction would likely depend largely on which rate(s) the Fed targets. We would expect the curve to flatten until the point of the target (say the 10y) and then for the 10-30y sector to steepen considerably as inflation expectations should rise. This could prompt the Fed to cap rates at multiple points on the curve.
  • The commitment to expand the balance sheet without a limit would likely increase inflation risk premiums sharply across the curve, though presumably this would be a desired effect. Assuming that yield target is around the 10y, we would expect 10y TIPS breakevens to rise close to 2.5% real rates to decline so as to bring nominal rates below the yield ceiling.
  • Volatility should decline significantly as the Fed cuts off the higher rate distribution, at least temporarily. We would expect short term payer skew to cheapen while longer term payer skew should rise given higher inflation risk premiums.

2. Mandate targeting

Chicago Fed President Charles Evans has proposed that the Fed keep policy accommodative until certain conditions or “triggers” for a change in the policy stance have been met. In other words, make policy “state dependent” (i.e., a function of economic conditions and/or forecasts) rather than “time dependent” (expiring at a given point in time). Both the forward guidance and the balance sheet expansion could be made state dependent.

Evans has proposed a pair of triggers, based on the dual mandate. The first is for the unemployment rate to fall below 7%, which appears to be well above the Committee’s estimate of the NAIRU inflation trigger. The second is if the inflation rate rose above 3%. The rationale for this number is symmetry: Evans noted that the Committee was willing to let the inflation rate drop to 1% before aggressively responding in late 2012; thus, they should be willing to let inflation rise to 3% before strongly countering it.

Importantly, these triggers are designed to be simple but temporary means of communicating the likely stance of Fed policy when it is significantly missing its dual mandate objectives. In more “normal” times, these triggers would not be used. In particular, the 3% trigger is supposed to be consistent with a longer-term 2% inflation target. That is, should the unemployment rate be sufficiently high, the Fed might tolerate inflation up to 3% for a period of time, but would still aim to keep inflation around 2% in the long run. The hope is that with clear communication, the Fed’s anti-inflation credibility would not be damaged.

Market implications

  • Committing to an unemployment trigger would likely to lead a large decline in rates, in our view. Given our current forecasts, we do not project unemployment levels to reach even 7% before 2015 or 2016. This would likely mean continued purchases of Treasuries, which could likely take Fed ownership of the 6y-30y sector above 50%. 10y rates could decline close to 1% in this scenario, in our view. Further, the first Fed hike would be extended out much more, thus helping lower 5y rates.
  • TIPS breakevens are likely to increase as the indefinite expansion of the balance sheet is likely to raise inflation risk premiums. However, the effect on the nominal curve would likely depend largely on the sector purchased by the Fed in order to meet its mandate. Any distribution similar to Operation twist would likely to lead to a large flattening of the curve.
  • The move lower in rates should lower volatility in the rates market. However, volatility could significantly increase around key data releases such as payrolls.

3. Raising the inflation target

A more extreme policy than temporarily establishing an above-inflation target trigger for policy is to just raise the central bank’s long-run inflation target itself.

Recently, this approach has been advocated by Princeton’s Paul Krugman and the IMF’s Olivier Blanchard — not to mention a certain Ben Bernanke some years ago when advising the Bank of Japan. Such a policy is most appropriate when a central bank has been unsuccessful in preventing a deflationary psychology from setting in. In this case, the central bank commits itself to being “irresponsible,” in the words of its proponents, in order to raise inflation expectations above a deflationary level. This should stimulate the economy by reducing real interest rates, thereby encouraging borrowing and investment and jump-starting the economy from a liquidity trap.

However, many central bankers see this option as playing with fire — the current chairman of the Federal Reserve included. In his recent Humphrey-Hawkins testimony, Bernanke argued that raising the inflation target was unlikely to pass a cost-benefit analysis: “I am very skeptical that it would increase confidence among businesses and households and increase economic activity. I think it would create a lot of problems in financial markets as well,” he stated. Bernanke also suggested that it might be hard for a central bank like the Fed to easily unhinge currently well-anchored inflation expectations — and then, once doing so, it would also be hard to re-anchor them at, say, 4% without potentially drifting higher (Chart 19). Once a central bank decides it won’t stick to one previously announced inflation target, why should the public believe it will stick to a different one?

Market implications

  • We would expect long end rates to rise considerably, led by inflation expectations. However, if the Fed combines its inflation target along with a QE program, purchases would likely offset the rise in inflation expectations by lowering real rates. The net effect on nominal rates would likely depend on how aggressively the Fed set out to achieve a higher inflation target. If the Fed combined a higher inflation target with a ceiling on yields, it could drive real rates deeply negative.
  • TIPS breakevens and breakeven volatility would likely shift much higher as the risk of the Fed losing control of inflation expectations increases. This would also likely cause a shift in base inflation expectations to 3% or above.
  • Vega on 30y tails would likely increase significantly and payer skew should richen as inflation expectations head higher


Coordinated nuclear options

The Fed could also embark on a number of actions with coordinated support from the Treasury and/or Congress. These options are likely to have largely similar impacts on the rates market given how large they are likely to be. First, the market would presumably be at extremely stressed levels for the Fed to even consider any of these options. This would likely be manifested in much lower rates, flatter curve, wider credit spreads and a lower stock market. So we expect the nuclear policy response to come as a relief and should result in rising rates, higher inflation expectations, a steeper curve and higher vol. Note that the Fed could combine one of these policies with a yield target to limit the rise in rates.

Money financed fiscal expansion

This option is the realization of Milton Friedman’s rhetorical “helicopter drop” of money to stimulate spending. When the Fed engages in traditional expansion of the money supply, money slowly and rather indirectly works through the financial sector and into the hands of consumers and businesses though an increase in lending. However, a money financed fiscal expansion would directly stimulate aggregate demand by increasing government consumption expenditures and/or putting the money in the hands of those who would spend it.

Instead of financing expansionary spending or tax policies through debt issuance or tax increases, the government would rely on seignorage (i.e., printing money). For example, the government thus could finance tax cuts — an expansionary fiscal policy — via Fed purchases of Treasuries funded by an increase in excess reserves. (Note that the Federal Reserve Act prohibits Fed purchases of government debt in the primary market, so the Fed would still have to purchase Treasuries in the secondary market as in the case of QE). Alternatively, the government could increase transfers or rebates to households or businesses paid for through seignorage. Presumably, there is a psychological impact of a temporary income windfall that results in a higher than usual propensity to spend and thus a larger stimulative impact upon the economy. Moreover, such a policy would likely weaken the dollar, potentially providing a boost to net exports (Chart 20).

There are several challenges to this approach. First, it runs the risk to generating higher inflation. Thus, it is most likely to be tried — and to be effective – during a recession. Second, it strongly blurs the line between monetary and fiscal policy, and could raise concerns among investors that the government might try to coerce the central bank to repeat such a policy when it is not appropriate, such as ahead of an election. In that case, the independence of the central bank would be questioned, and investors would price in a greater probability of higher inflation over time. That said, it seems extremely unlikely that Congress would agree to such a policy given the current political environment in Washington DC. Also, it is likely to be extremely difficult for the Fed and Congress to agree upon how much money financed fiscal expansion would be appropriate.

FX market intervention to weaken the dollar

One of the channels through which monetary policy affects aggregate demand is through the exchange rate. Expansionary monetary policy typically is associated with a weaker currency, which should bolster exports and discourage imports, all else equal. However, the Fed’s approach toward the dollar is best described as one of “benign neglect”: the Fed does not typically try to weaken the dollar as an explicit goal of policy, but it recognizes that dollar depreciation is a normal consequence of expansionary monetary policy and does not try to counteract it either. (Indeed, Fed officials rarely discuss the dollar, as by convention foreign exchange policy is the authority of the Treasury Department.) In this plan, the Fed would instead directly (perhaps in conjunction with the domestic fiscal authorities or with other central banks) sell the US dollar and buy currencies of other regions in order to weaken the international value of the dollar.

This approach could be inflationary if imports become more expensive as a result.

Given calls to avoid “dollar debasement” in the Congress currently, this policy would also contain significant political risks. Although highly unlikely to be implemented today, it is worth noting that Bernanke’s academic work on the Great Depression has discussed the reflationary effects of the 40% dollar devaluation against gold that was engineered by President Roosevelt in 1933. This coincided with a sharp rebound in US industrial production, which had fallen by more than 50% over the prior four years.

The question of what assets the Fed would purchase with its intervention proceeds is also relevant. Section 14 of the Federal Reserve Act authorizes the Fed to purchase "obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof." In other words, the Fed has the statutory authority to purchase foreign currency-denominated government debt in unlimited quantities should it choose to do so.


Source: BofAML

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engineertheeconomy's picture

 Bernanke is above Homeland Security, the NSA, the CIA, the MIA, the President, the congress and the american people because he can fund any Terrorist Entity, anywhere in the world, and justify it by saying on top of the principle they're going to pay him interest on the gazillions he pays himself with his magic wand


Daily Bail's picture

CAUGHT ON TAPE - Hypocrite Harry Reid Lobbies On The Senate Floor: "I Think We Should Audit The Federal Reserve"

This clip is infuriating given Reid's vow yesterday to not even allow the Senate to consider Ron Paul's bill that passed the House yesterday.


Feel free to include a link to the proof of his Fed-Auditing hypocrisy, if you wish...

522 Hart Senate Office Building
Washington, DC 20510
Phone202-224-3542 / Fax: 202-224-7327

Gee, wouldn't it suck if Harry Reid's office were overwhelmed by callers from ZH demanding that he allow a vote on Ron Paul's bill.  Poor guy has no idea what is about to hit him.

Thanks in advance to anyone who calls.  And make sure to let them know you've seen the video of Reid calling for a Fed Audit.  Ask them why he changed his mind.

Revenge, bitchez.

BaBaBouy's picture

One WAY Or Another ... GOLD $50K, Bitchies ...

LMAOLORI's picture


Sure would I'll call again but you realize the democrat's want the fed to help obama so it's not likely


The left is more interested in saving the bankers and their power then saving America.


“Opposition in Congress came chiefly from Democrats who said they doubt the bill ever becomes law — but worried about sending a signal to financial markets that lawmakers want to intervene in financial affairs.

Sadly this will never pass the Senate and now you know who the culprits are! Not only are they beholden to the banks but they want the Fed to help obama

Democrats warn Rep. Paul’s ‘audit the Fed’ bill will politicize monetary policy

Schumer Pushes Fed Toward QE3, Tells Bernanke ‘Get To Work Mr. Chairman’


The Audit The Fed Bill Gets Passed By The House But Obama And The Democrats Are Going To Kill It

Daily Bail's picture

I never said it would be easy, or that even 10,000 phone calls would make a difference, but damnit, we have to do something.


I found out during my 4-month hiatus from the Financial Counterculture, that doing nothing and trying to forget the corrupted insanity or even just ignoring it, doesn't work.  I would rather go down with a heart attack from daily blogging stress than give in to these motherfuckers.  I've made up my mind.  I'm going to fight these bastards until I am dead.

So I don't care if our efforts fail, because goddamnit, it feels good to fight.

Doña K's picture

Equilibrium will eventually be achieved by natural law. The pain however is directly proportionate to the length of time.

earleflorida's picture

'too old to soon... too smart to late'  [unknown]

flacon's picture

I think the Ph.Dees need to get into a room and come up with a list of prices for the top one million items sold each day. Anyone who sells above or below such prices should be marched to a concentration camp. That will fix the problem.   /s

Doña K's picture

And I think, that those FED's with fantasy land PHD's should get real world JOB's

Snidley Whipsnae's picture

What they will not do: "all the way to explicit USD devaluation (relative to Gold)"

They will give up plastic money when hell freezes over... or the system implodes.

Deo vindice's picture

There is always the only right and moral option:

They could grow a conscience and be convicted of the gross evil of their organization, apologize, make restitution and disband the FED.

THAT would be the right thing. Anything else or anything less is simply repackaging the wickedness they have perpetuated under false pretenses since their inception.

engineertheeconomy's picture

Here lies the Federal Reserve

born 1918

died 2012

R.I.P.  burn in hell you fucking cocksuckers

LULZBank's picture

No Clear option Bitchezz!!!

LMAOLORI's picture





If the Fed reduces the reward for holding excess reserves, banks will have to find something else to do with their money, like making loans or putting it in the capital markets.




Fortunately, there is more the Fed can do. I have two out-of-the-box suggestions to make, one in today's column and another in a companion piece soon.

The simpler option is one I've been urging on the Fed for more than two years: Lower the interest rate paid on excess reserves. The basic idea is simple. If the Fed reduces the reward for holding excess reserves, banks will hold less of them—which means they will have to find something else to do with the money, such as lending it out or putting it in the capital markets.

The Fed sees this as a radical change. But remember that it paid no interest on reserves before the 2008 crisis and, not surprisingly, banks held practically no excess reserves then. In early October of that year, Congress gave the Fed authority to pay interest on reserves, which it promptly started doing. When the Fed trimmed the federal funds rate to its current 0-25 basis-point range in December 2008, it also lowered the interest rate on reserves to 25 basis points, where it has been ever since

My suggestion is to push it lower in two stages. First, test the waters by cutting the interest on excess reserves (in Fedspeak, the "IOER") to zero. Then, if nothing goes wrong, drop it to, say, minus-25 basis points—that is, charge banks a fee for holding their money at the Fed. Doing so would provide a powerful incentive for banks to disgorge some of their idle reserves.


The Fed's hostility toward lowering the interest on excess reserves is almost self-contradictory. When Mr. Bernanke lists the weapons the Fed plans to use when the time comes to tighten monetary policy, he always gives raising the IOER a prominent role. His reasoning is straightforward and sound: If the Fed makes holding reserves more attractive, banks will hold more of them. Why doesn't the same reasoning apply in the other direction?

But suppose it doesn't work. Suppose the Fed cuts the IOER from 25 basis points to minus 25 basis points, and banks don't lend one penny more. In that case, the Fed stops paying banks almost $4 billion a year in interest and, instead, starts collecting roughly equal fees from banks. That would be almost an $8 billion swing from banks to taxpayers. There are worse things.

in full

mick_richfield's picture

Or maybe we could abolish the Fed and have free markets?

Confundido's picture

They won't lowe IOER. It would destroy the money market/repo market and would make commodity prices manipulation via futures impossible. They would never be so dumb to do that.

Meesohaawnee's picture

Watching Art Cashin... He looks like he knows whats going on but his masters wont allow him to say what he really believes on air.


Rip van Wrinkle's picture

It's about he grew a backbone then. Surely to God he's OK for money by now.

engineertheeconomy's picture

Bernanke funneling $$$ to Foreign Terrorists

KandiRaverHipster's picture

jusr raise rates, attract capital and let me actually use a savings account

madcows's picture

How well do nuclear options work when the other central bankers are doing the same thing?  Shit just costs a lot more.  That ought to really fix our debt problem.

Inthemix96's picture

How about this for a novel idea fed?

Cut the fucking crap and stop the outright fraud you fuckers are engaged in 24 hours a day 7 days a week?

Then us normal folk will stop having murdurous thoughts about gutting you filthy, robbing, of no use to humanity cunts?

On a brighter note, you should have listened to your mothers.  You should have been a carpenter or a plumber, you know a real fucking job, and none of this would have happened eh?

Paper pushing cunts

engineertheeconomy's picture

That little sniviling bitch cunt Bernanke needs to stop sucking his own dick and man up to his unparelled theiving scam. Real men use GOLD

Inthemix96's picture

It wont happen engineer, unless we make it happen.

I would bet right here that two pint bernanks wouldnt last one punch with me, fancy a tenner on it?

Scabby little dwarf cunt what he is.

HoofHearted's picture

Dude, I know Bernanke has a nice bear like my plumber, but there is no way in hell I'm going to let that bastard anywhere near my plumbing or near my sheetrock. The Bernank would surely screw my whole house up and it would fall down. Just look at what e has done to the USD. I remember when a candy bar was 20 cents, and I'm not even 40 yet!!!

Seriously, the Bernank would just add to the SNAP numbers and the unemployment benefits. He couldn't do anything right.

Inthemix96's picture


I do believe the useless little shit stain would make good fertilizer if utilised properly?

resaci's picture


Think of the clusterFUCK that would happen on a building site...


Why in the FUCK can't the 99% see that the FED fucks with our financial ruler the "dollar"












Bartanist's picture

They know that there is no option that will get them more than a few months of time unless they let the banks take the hit write off all the bad debt, the shareholders and bondholders of the banks all suffer ... but in the end they recapitalize with another 30 years of running room.

The bigger problem that I see is that Obama is not cooperating. What good is writing off the bad debt if Obama continues to spend like a drunken sailor in a whorehouse (excuse me gay bathhouse). Obama seems bound and determined to sink the country under the load of heavy debt (shove the firehose down the throat of the banks), period. He does not want a solution. He wants this country dead.

How can the banks take the hit and make things right when the Obama dictatorship will just spend more and then blame the banks when he collapses the country?

Stoploss's picture

Too bad none of these options adress the cause.

Carry on, steady as she goes.

This assures that the current fiat cycle will be the last for a while.

Doubleguns's picture

If we get to vote. I'll take the "explicit USD devaluation (relative to Gold)" for 600,000.

FieldingMellish's picture

I vote for "Kick the Can" but when is continuing to dig a deep hole deeper a solution for getting out of the hole? How can this been seen as good? Likely, yes, but not necessarily good.

Whoa Dammit's picture

None of these options will actually work.

The only thing that will save the economy is the restoration of decent paying middle class jobs.  That will require the destruction of TBTF banks and multinational corporations, so I don't see that happening by mandate. It will happen though,  when the reality of the true math gets to be too much for them.

Hedgetard55's picture

Horshit article. Ben has two choices - default, or default by another name, i.e. hyper-inflation. that is it.

g speed's picture

what will work is mark to market and vigilanty justice for banker loans, investments and mortgage fraudsters,( including central banks) and banker politicos world wide--no place to hide.

ghostfaceinvestah's picture

They missed the real nuclear option - buy gold, lots of it.

Confundido's picture

What I don't get is this popular mania of thinking that the Fed is doing all this to boost growth. THE FED WILL PRINT BECAUSE NOBODY IS BUYING THE FUCKING TREASURIES. NOBODY. Type DEBT FED <GO> and you'll see... Why are the fucking analysts looking at activity data from the private sector. In countries with history of inflation, analysts look at the fiscal gaps, not housing data, jobs data, orders etc. FISCAL GAP, ladies!!! FISCAL GAP. They can delay, but they cannot afford not to buy. PERIOD. IAM FUCKING SICK OF THIS IDIOCY!

DosZap's picture


Sure they are, the FED is.

dizzyfingers's picture
The Wall Street Pentagon Papers: Biggest Scam In World History Exposed: Are The Federal Reserve’s Crimes Too Big To Comprehend?

By David DeGraw
The Public Record
Dec 10th, 2010


What if the greatest scam ever perpetrated was blatantly exposed, and the US media didn’t cover it? Does that mean the scam could keep going? That’s what we are about to find out.

I understand the importance of the new WikiLeaks documents. However, we must not let them distract us from the new information the Federal Reserve was forced to release. Even if WikiLeaks reveals documents from inside a large American bank, as huge as that could be, it will most likely pale in comparison to what we just found out from the one-time peek we got into the inner-workings of the Federal Reserve. This is the Wall Street equivalent of the Pentagon Papers.

I’ve written many reports detailing the crimes of Wall Street during this crisis. The level of fraud, from top to bottom, has been staggering. The lack of accountability and the complete disregard for the rule of law have made me and many of my colleagues extremely cynical and jaded when it comes to new evidence to pile on top of the mountain that we have already gathered. But we must not let our cynicism cloud our vision on the details within this new information.

Just when I thought the banksters couldn’t possibly shock me anymore… they did.

We were finally granted the honor and privilege of finding out the specifics, a limited one-time Federal Reserve view, of a secret taxpayer funded “backdoor bailout” by a small group of unelected bankers. This data release reveals “emergency lending programs” that doled out $12.3 TRILLION in taxpayer money – $3.3 trillion in liquidity, $9 trillion in “other financial arrangements.”

Wait, what? Did you say $12.3 TRILLION tax dollars were thrown around in secrecy by unelected bankers… and Congress didn’t know any of the details?

Yes. The Founding Fathers are rolling over in their graves. The original copy of the Constitution spontaneously burst into flames. The ghost of Tom Paine went running, stark raving mad screaming through the halls of Congress.

The Federal Reserve was secretly throwing around our money in unprecedented fashion, and it wasn’t just to the usual suspects like Goldman Sachs, JP Morgan, Citigroup, Bank of America, etc.; it was to the entire Global Banking Cartel. To central banks throughout the world: Australia, Denmark, Japan, Mexico, Norway, South Korea, Sweden, Switzerland, England… To the Fed’s foreign primary dealers like Credit Suisse (Switzerland), Deutsche Bank (Germany), Royal Bank of Scotland (U.K.), Barclays (U.K.), BNP Paribas (France)… All their Ponzi players were “gifted.” All the Racketeer Influenced and Corrupt Organizations got their cut.

Talk about the ransacking and burning of Rome! Sayonara American middle class…

If you still had any question as to whether or not the United States is now the world’s preeminent banana republic, the final verdict was just delivered and the decision was unanimous. The ayes have it.

Any fairytale notions that we are living in a nation built on the rule of law and of the global economy being based on free market principles has now been exposed as just that, a fairytale. This moment is equivalent to everyone in Vatican City being told, by the Pope, that God is dead.

I’ve been arguing for years that the market is rigged and that the major Wall Street firms are elaborate Ponzi schemes, as have many other people who built their beliefs on rational thought, reasoned logic and evidence. We already came to this conclusion by doing the research and connecting the dots. But now, even our strongest skeptics and the most ardent Wall Street supporters have it all laid out in front of them, on FEDERAL RESERVE SPREADSHEETS.

Even the Financial Times, which named Lloyd Blankfein its 2009 person of the year, reacted by reporting this: “The initial reactions were shock at the breadth of lending, particularly to foreign firms. But the details paint a bleaker and even more disturbing picture.”

Yes, the emperor doesn’t have any clothes. God is, indeed, dead. But, for the moment at least, the illusion continues to hold power. How is this possible?

To start with, as always, the US television “news” media (propaganda) networks just glossed over the whole thing – nothing to see here, just move along, back after a message from our sponsors… Other than that obvious reason, I’ve come to the realization that the Federal Reserve’s crimes are so big, so huge in scale, it is very hard for people to even wrap their head around it and comprehend what has happened here.

Think about it. In just this one peek we got at its operations, we learned that the Fed doled out $12.3 trillion in near-zero interest loans, without Congressional input.

The audacity and absurdity of it all is mind boggling…

Based on many conversations I’ve had with people, it seems that the average person doesn’t comprehend how much a trillion dollars is, let alone 12.3 trillion. You might as well just say 12.3 gazillion, because people don’t grasp a number that large, nor do they understand what would be possible if that money was used in other ways.

Can you imagine what we could do to restructure society with $12.3 trillion? Think about that…

People also can’t grasp the colossal crime committed because they keep hearing the word “loans.” People think of the loans they get. You borrow money, you pay it back with interest, no big deal.

That’s not what happened here. The Fed doled out $12.3 trillion in near-zero interest loans, using the American people as collateral, demanding nothing in return, other than a bunch of toxic assets in some cases. They only gave this money to a select group of insiders, at a time when very few had any money because all these same insiders and speculators crashed the system.

Do you get that? The very people most responsible for crashing the system, were then rewarded with trillions of our dollars. This gave that select group of insiders unlimited power to seize control of assets and have unprecedented leverage over almost everything within their economies – crony capitalism on steroids.

This was a hostile world takeover orchestrated through economic attacks by a very small group of unelected global bankers. They paralyzed the system, then were given the power to recreate it according to their own desires. No free market, no democracy of any kind. All done in secrecy. In the process, they gave themselves all-time record-breaking bonuses and impoverished tens of millions of people – they have put into motion a system that will inevitably collapse again and utterly destroy the very existence of what is left of an economic middle class.

That is not hyperbole. That is what happened.

We are talking about trillions of dollars secretly pumped into global banks, handpicked by a small select group of bankers themselves. All for the benefit of those bankers, and at the expense of everyone else. People can’t even comprehend what that means and the severe consequences that it entails, which we have only just begun to experience.

Let me sum it up for you: The American Dream is O-V-E-R.

Welcome to the neo-feudal-fascist state.

People throughout the world who keep using the dollar are either A) Part of the scam; B) Oblivious to reality; C) Believe that US military power will be able to maintain the value of an otherwise worthless currency; D) All of the above.

No matter which way you look at it, we are all in serious trouble!

If you are an elected official, (I know at least 17 of you subscribe to my newsletter) and you believe in the oath you took upon taking office, you must immediately demand a full audit of the Federal Reserve and have Ben Bernanke and the entire Federal Reserve Board detained. If you are not going to do that, you deserve to have the words “Irrelevant Puppet” tattooed across your forehead.

Yes, those are obviously strong words, but they are the truth.

The Global Banking Cartel has now been so blatantly exposed, you cannot possibly get away with pretending that we live in a nation of law based on the Constitution. The jig is up.

It’s been over two years now; does anyone still seriously not understand why we are in this crisis? Our economy has been looted and burnt to the ground due to the strategic, deliberate decisions made by a small group of unelected global bankers at the Federal Reserve. Do people really not get the connection here? I mean, H.E.L.L.O. Our country is run by an unelected Global Banking Cartel.

I am constantly haunted by a quote from Harry Overstreet, who wrote the following in his 1925 groundbreaking study Influencing Human Behavior: “Giving people the facts as a strategy of influence” has been a failure, “an enterprise fraught with a surprising amount of disappointment.”

This crisis overwhelmingly proves Overstreet’s thesis to be true. Nonetheless, we solider on…

Here’s a roundup of reports on this BernankeLeaks:

Prepare to enter the theater of the absurd…

I’ll start with Senator Bernie Sanders (I-Vermont). He was the senator who Bernanke blew off when he was asked for information on this heist during a congressional hearing. Sanders fought to get the amendment written into the financial “reform” bill that gave us this one-time peek into the Fed’s secret operations. (Remember, remember the 6th of May, HFT, flash crash and terrorism. “Hey, David, Homeland Security is on the phone! They want to ask you questions about some NYSE SLP program.”)

In an article entitled, “A Real Jaw-Dropper at the Federal Reserve,” Senator Sanders reveals some of the details:

At a Senate Budget Committee hearing in 2009, I asked Fed Chairman Ben Bernanke to tell the American people the names of the financial institutions that received an unprecedented backdoor bailout from the Federal Reserve, how much they received, and the exact terms of this assistance. He refused. A year and a half later… we have begun to lift the veil of secrecy at the Fed…

After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed’s multi-trillion-dollar bailout of Wall Street and corporate America….

We have learned that the $700 billion Wall Street bailout… turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country.…

Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations including two European megabanks — Deutsche Bank and Credit Suisse — which were the largest beneficiaries of the Fed’s purchase of mortgage-backed securities….

Has the Federal Reserve of the United States become the central bank of the world?… [read Global Banking Cartel]

What this disclosure tells us, among many other things, is that despite this huge taxpayer bailout, the Fed did not make the appropriate demands on these institutions necessary to rebuild our economy and protect the needs of ordinary Americans….

What we are seeing is the incredible power of a small number of people who have incredible conflicts of interest getting incredible help from the taxpayers of this country while ignoring the needs of the people. [read more]

In an article entitled, “The Fed Lied About Wall Street,” Zach Carter sums it up this way:

The Federal Reserve audit is full of frightening revelations about U.S. economic policy and those who implement it… By denying the solvency crisis, major bank executives who had run their companies into the ground were allowed to keep their jobs, and shareholders who had placed bad bets on their firms were allowed to collect government largesse, as bloated bonuses began paying out soon after.

But the banks themselves still faced a capital shortage, and were only kept above those critical capital thresholds because federal regulators were willing to look the other way, letting banks account for obvious losses as if they were profitable assets.

So based on the Fed audit data, it’s hard to conclude that Fed Chairman Ben Bernanke was telling the truth when he told Congress on March 3, 2009, that there were no zombie banks in the United States.

“I don’t think that any major U.S. bank is currently a zombie institution,” Bernanke said.

As Bernanke spoke those words banks had been pledging junk bonds as collateral under Fed facilities for several months…

This is the heart of today’s foreclosure fraud crisis. Banks are foreclosing on untold numbers of families who have never missed a payment, because rushing to foreclosure generates lucrative fees for the banks, whatever the costs to families and investors. This is, in fact, far worse than what Paul Krugman predicted. Not only are zombie banks failing to support the economy, they are actively sabotaging it with fraud in order to make up for their capital shortages. Meanwhile, regulators are aggressively looking the other way.

The Fed had to fix liquidity in 2008. That was its job. But as major banks went insolvent, the Fed and Treasury had a responsibility to fix that solvency issue—even though that meant requiring shareholders and executives to live up to losses. Instead, as the Fed audit tells us, policymakers knowingly ignored the real problem, pushing losses onto the American middle class in the process.” [read more]

Even the Financial Times is jumping ship:

Sunlight Shows Cracks in Fed’s Rescue Story

It took two years, a hard-fought lawsuit, and an act of Congress, but finally… the Federal Reserve disclosed the details of its financial crisis lending programs. The initial reactions were shock at the breadth of lending, particularly to foreign firms. But the details paint a bleaker, earlier, and even more disturbing picture…. An even more troubling conclusion from the data is that… it is now apparent that the Fed took on far more risk, on less favorable terms, than most people have realized. [read more]

In true Fed fashion, they didn’t even fully comply with Congress. In a report entitled, “Fed Withholds Collateral Data for $885 Billion in Financial-Crisis Loans,” Bloomberg puts some icing on the cake:

For three of the Fed’s six emergency facilities, the central bank released information on groups of collateral it accepted by asset type and rating, without specifying individual securities. Among them was the Primary Dealer Credit Facility, created in March 2008 to provide loans to brokers as Bear Stearns Cos. collapsed.

“This is a half-step,” said former Atlanta Fed research director Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Sarasota, Florida. “If you were going to audit the facilities, then would this enable you to do an audit? The answer is ‘No,’ you would have to go in and look at the individual amounts of collateral and how it was broken down to do that. And that is the spirit of what the requirements were in Dodd-Frank.” [read more]

See also:

Fed Data Dump Reveals More Contradictions About its $1.25 Trillion MBS Purchase Program Fed Created Conflicts in Improvising $3.3 Trillion Financial System Rescue Meet The 35 Foreign Banks That Got Bailed Out By The Fed Ben Bernanke’s Secret Global Bank

Here’s the only person on US TV “news” who actually covers and understands any of this, enter Dylan Ratigan, with his guest Chris Whalen from Institutional Risk Analytics. This quote from Whalen sums it up well: “The folks at the Fed have become so corrupt, so captured by the banking industry… the Fed is there to support the speculators and they let the real economy go to hell.”


The Progressive’s Matthew Rothschild has a good quote: “The financial bailout was a giant boondoggle, undemocratic and kleptocratic to its core.”

Matt Stoller on NewDeal 2.0:

End This Fed

The Fed, and specifically the people who run it, are responsible for declining wages, for de-industrialization, for bubbles, and for the systemic corruption of American capital markets. The new financial blogosphere destroyed the Fed’s mythic stature…. With a loss of legitimacy comes a lack of public trust and a vulnerability to any form of critic. The Fed is now less respected than the IRS…. Liberals should stop their love affair with conservative technocratic myths of monetary independence, and cease seeing this Federal Reserve as a legitimate actor. At the very least, we need to begin noticing that these people do in fact run the country, and should not. [read more]

In case anyone is confused into believing that this is just another right vs. left partisan issue, enter Fox Business host Judge Andrew Napolitano with his guest Republican Congressman Ron Paul, who is, of course, a longtime leading Fed critic. Paul hopes to see some Wikileaks on the Federal Reserve:


The Sunlight Foundation shines a light on Bank of America and the Federal Reserve’s brother money manager BlackRock:

Federal Reserve Loan Program Allowed Bank of America to Benefit Twice

Bank of America was one of several banks that was able to play both sides of a Federal Reserve program launched during the 2008 financial crisis. While Bank of America was selling its assets to firms obtaining loans through the Fed program, the investment firm BlackRock—partially owned by Bank of America—was potentially turning a profit by using those loans to buy assets similar to those sold by Bank of America. [read more]

Gretchen Morgenson at the New York Times jumps into the act:

So That’s Where the Money Went

How the truth shines through when you shed a little light on a subject….

All of the emergency lending data released by the Fed are highly revealing, but why weren’t they made public much earlier? That’s a question that Walker F. Todd, a research fellow at the American Institute for Economic Research, is asking.

Mr. Todd, a former assistant general counsel and research officer at the Federal Reserve Bank of Cleveland, said details about the Fed’s vast and various programs should have been available before the Dodd-Frank regulatory reform law was even written.

“The Fed’s current set of powers and the shape of the Dodd-Frank bill over all might have looked quite different if this information had been made public during the debate on the bill,” he said. “Had these tables been out there, I think Congress would have either said no to emergency lending authority or if you get it, it’s going to be a much lower number — half a trillion dollars in the aggregate.” [read more]

Welcome to the “global pawnshop:”

The Fed Operates as a “global pawnshop:” $9 trillion to 18 financial institutions

What the report shows is that the Fed operated as a global pawnshop taking in practically anything the banks had for collateral. What is even more disturbing is that the Federal Reserve did not enact any punitive charges to these borrowers so you had banks like Goldman Sachs utilizing the crisis to siphon off cheap collateral. The Fed is quick to point out that “taxpayers were fully protected” but mention little of the destruction they have caused to the US dollar. This is a hidden cost to Americans and it also didn’t help that they were the fuel that set off the biggest global housing bubble ever witnessed by humanity. [read more]

“No strings attached.” Financial reporter Barry Grey unleashes the truth:

Fed report lifts lid on Great Bank Heist of 2008-2009

The banks and corporations that benefited were not even obliged to provide an account of what they did with the money. The entire purpose of the operation was to use public funds to cover the gambling losses of the American financial aristocracy, and create the conditions for the financiers and speculators to make even more money.

All of the 21,000 transactions cited in the Fed documents?released under a provision included, over the Fed’s objections, in this year’s financial regulatory overhaul bill?were carried out in secret. The unelected central bank operated without any congressional mandate or oversight.

The documents shed light on the greatest plundering of social resources in history. It was carried out under both the Republican Bush and Democratic Obama administrations. Those who organized the looting of the public treasury were long-time Wall Street insiders: men like Bush’s treasury secretary and former Goldman Sachs CEO Henry Paulson and the then-president of the New York Federal Reserve, Timothy Geithner….

The Fed documents show that the US central bank enabled banks and corporations to offload their bad debts onto the Fed’s balance sheet. Now, in order to prevent a collapse of the dollar and a default by the US government, the American people are being told they must sacrifice to reduce the national debt and budget deficit.

But as the vast sums make clear, the “sacrifice” being demanded of working people means their impoverishment?wage-cutting, mass unemployment, cuts in health care, Social Security, Medicare, Medicaid, etc.

The very scale of the Fed bailout points to the scale of the financial crash and the criminality that fostered it…. The entire US capitalist economy rested on a huge Ponzi scheme that was bound to collapse…

The banks were able to take the cheap cash from the Fed and lend it back to the government at double and quadruple the interest rates they were initially charged?pocketing many billions in the process….

The ongoing saga of the looting of the economy by the financial elite puts the lie to the endless claims that “there is no money” for jobs, housing, education or health care. The ruling class is awash in money. [read more]

Here’s an old Jim Rogers interview from two years ago when this whole thing was originally going down:

hoos bin pharteen's picture

Why does BofAML think QE3 Oct-June?  I'd think it would come much sooner (August?) given the circumstances. 

toomanyfakeconservatives's picture

The FED will be going the way of the dinosaur when the MASS ARRESTS occur and legitimate treasury notes are issued. Here is what to expect in the near term... the MASS ARRESTS of everyone from Obama and Brenanke on down, the virtual dissolution of the federal government, and the unleashing of countless supressed planet-saving, human race-saving technologies. Don't believe the fear-bot keyboard jockeys who dismiss what's coming.

I dont belong here's picture

That's a nice fairy tale. I really, really wish it were true. The people in power are crashing the system to gain MORE power, not less. No one will be arrested unless they double cross TPTF.

toomanyfakeconservatives's picture

So tens of millions of American gun owners, patriots, active-duty military, veterans, reservists, police, federal marshalls and so forth are just going to remain silent forever? Are they powerless, irrelevant, and inconsequential? I don't believe so. Less than 5% of the colonists sent the British empire packing... it will take far less than 1% of the aforementioned to send our illegitimate federal government, the FED, and the traitors to the dustbin of history. Get a grip, listen to the interview, and know your moments in history.