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Revisiting The "Nuclear Option": Will The Fed Buy European Bonds?

Tyler Durden's picture


Nearly two years ago, we first breached the topic of the Fed's nuclear option: the possibility (or is that likelihood) of the Fed stepping out of the continental US and proceeding to monetize European bonds. Back then we noted: "One thing learned over the past year is that everything is a distraction for something else, and that something else, quite usually without failure, ends up being the Marriner Eccles building on Constitution Avenue in D.C. What we refer to is disclosure from a paper written by none other than the Maestro Jr, in 2004, titled "Conducting Monetary Policy at Very Low Short-Term Interest Rates" (oddly appropriate). In this paper, Bernanke discusses not only the possibility of purchasing corporate assets (bonds and stocks), but emphasizes that one other security class which the Fed may be inclined to acquire under conditions such as those today, and has an explicit authority to do so, are foreign government bonds." The specific text referenced was the following: "In simple terms, if the liquidity or risk characteristics of securities differ, so that investors do not treat all securities as perfect substitutes, then changes in relative demands by a large purchaser have the potential to alter relative security prices. The same logic might lead the central bank to consider purchasing assets other than government securities, such as corporate bonds or stocks or foreign government bonds. (The Federal Reserve is currently authorized to purchase some foreign government bonds...)" So the question then becomes: with the ECB stubbornly refusing (for now) to proceed with outright monetization, and with its balance sheet already surpassing all time records as noted earlier (see below), coupled with tomorrow's LTRO which as discussed over the weekend will be a "Risk On" attempted failure, even if providing a brief relief rally in the interim, not to mention the complete lack of any long-term viability plan out of the Eurozone (EFSF failure due to lack of demand; IMF bailout plan failure due to the UK's veto and the circular joint and several funding by Italy and Spain of an Italian and Spanish bailout), will it be, once again, the Fed which at the end of the day will have to, by covert pathways or otherwise, be forced to step in and monetize European bonds: the so called Nuclear Option? Providing the latest thoughts on the topic is SocGen's Aneta Markowska...

Nuclear options - Can the Fed buy European bonds? This was a question that came up in Friday’s testimony by NY Fed’s Dudley to a congressional panel. Dudley confirmed that the Fed has the legal authority to buy foreign sovereign debt if the collateral is considered good and with appropriate haircuts. Though he wouldn’t rule anything out, Dudley noted that this has never been done and the bar is extraordinarily high. Theoretically speaking, this could actually be seen as a good option that solves a number of economic challenges: the US would see a weaker dollar, helping to rebalance its economy, while Europe would see its funding costs go down. Yet, we believe that the Fed would be facing tremendous political resistance in the US to such a decision. To date, the Fed’s crisis fighting operations have not led to any losses; buying foreign assets would expose US taxpayers not just to credit risk but also to currency risk. The Fed would probably think long and hard before taking such a step, particularly during a politically charged election year.

Yes, the Fed will think long and hard, but since as Kyle Bass observed, an ECB response would likely come only after a Eurozone default, and thus would be too late, an outcome which Draghi has telegraphed well in advance, we doubt that political considerations will hold the Fed back from doing whatever it needs to rescue the banking system, which currently has as its focal point day to day developments in Europe. It is also our contention that preserving the "Fiat way of life" is a sufficiently high bar for Mr Dudley. And yes, it is logical why such a move by the Fed is precisely what the Fed would desire, as it would lead to the same collapse in the USD that resulted back on March 18, 2009 when the Fed announced the expanded QE1. Finally, the primary reason why the ECB will likely not get involved is that its balance sheet is already at burgeoning records, and is well bigger than that of the Fed, making the final decision all too easy.


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Tue, 12/20/2011 - 16:15 | 1998667 MsCreant
MsCreant's picture

"Revisiting The "Nuclear Option": Will The Fed Buy European Bonds?"

Yes. Neeext!

Tue, 12/20/2011 - 16:18 | 1998683 redpill
redpill's picture

* but we won't find out about it until 2015 under a FOIA request

Tue, 12/20/2011 - 16:20 | 1998691 Divided States ...
Divided States of America's picture

I think Occupy will go nuclear if that way we bailing those lazy ass Europeans, not over my dead body.

Tue, 12/20/2011 - 16:22 | 1998704 MsCreant
MsCreant's picture

We, they, funny. We are all Ponzi scammers now, baby. It is all in the land of the absurd. Everyone is broke. They are printing and looking for a fiction that everyone will believe and let things go on as they have. 

Tue, 12/20/2011 - 16:39 | 1998771 redpill
redpill's picture

OT: Hitler was just informed about Ron Paul's latest polling results in Iowa:

That clip never gets old!

Tue, 12/20/2011 - 17:55 | 1999054 Banksters
Banksters's picture

Now that was HILARIOUS!

Wed, 12/21/2011 - 00:52 | 2000082 trav7777
trav7777's picture

with the ECB's balance sheet at 2.5T, how can we say they HAVEN'T been printing???

There just THAT MUCH debt out there needing rolled.  Doubling is like that.

75% of world debt is dollars, so it's up to the Fed to take care of that base.

Wed, 12/21/2011 - 05:54 | 2000347 Mauibrad
Tue, 12/20/2011 - 16:43 | 1998793 clones2
clones2's picture

They've got balls of steel if they openly purchase Euro Bonds..

But I'm sure they have a "plan" :-) haha.

Tue, 12/20/2011 - 16:48 | 1998809 DonnieD
DonnieD's picture

The Fed's balance sheet expanded by a few hundred billion today. They had to make a statement when BAC closed sub $5.

Tue, 12/20/2011 - 17:00 | 1998848 CClarity
CClarity's picture

Need to make Cindy Lou Hoo down in Whoville happy with a Santie Claus rally.  Print, need, print, need until more people "get it".

Tue, 12/20/2011 - 17:38 | 1998997 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The ECB's book is bigger than the Fed's....

I wonder if Ben has book envy

Tue, 12/20/2011 - 16:43 | 1998794 AldousHuxley
AldousHuxley's picture

Fed needs to short Euro banks, let them fail and profit for US.

Then also short US banks and let them fail along with Buffett's insider trader on BAC to profit for US and let bankster execs join th unemployment line.

Then short Chinese housing and let them fail along with communist party.


Relay the proceeds to US Treasury to pay off debt.


Any remaining profits are used to fund Ron Paul's presidential campaign.




Tue, 12/20/2011 - 16:47 | 1998806 MsCreant
MsCreant's picture

If we put you in as the head of the Fed, would you do all this and then shut the fucker down?

Tue, 12/20/2011 - 16:52 | 1998823 Potemkin Villag...
Potemkin Village Idiot's picture

Huxley/Paul 2012

Casue then when Huxley passes too close to the book depository, we end up with Ron Paul as POTUS...

Tue, 12/20/2011 - 17:28 | 1998963 AldousHuxley
AldousHuxley's picture

if I shut it down, then all elites would have to do is to kill me and resurrect the Fed...for the 4th time in US.


I would introduce legal competitions to the Fed with multiple national currencies. I mean their power really comes from monopoly of monetary policy giving you no choice but to accept their failures and corruption.


Also divide up central federal power systems and divde them into smaller portions such as at the state and county level  so that government maintains representation ratio to the people. This is to prevent consolidation of power into fewer and fewer hands as populations grow. All this consolidation only benefit those at the very top as you can see from mergers and acquisitions as the top elites just grow the pyramid beneath them.


It is time to decentralize United STATES of America. We still don't have a good grasp of central governance. Time to go back to letting states develop their own ways and see what works. All we know is New York City banksters cannot be trusted.






Wed, 12/21/2011 - 05:42 | 2000343 zhandax
zhandax's picture

All we know is New York City banksters cannot be trusted.

All we know is New York City banksters and all lawyers cannot be trusted.  There, fixed it for ya.

Tue, 12/20/2011 - 19:09 | 1999267 Stoploss
Stoploss's picture

Were the last ponzi house left on the block. All the neighbors are falling apart fast. Now asia is going into a banking crisis. Perfect timing.

Wed, 12/21/2011 - 05:48 | 2000345 zhandax
zhandax's picture

Sounds familiar; you own a house in California?

Tue, 12/20/2011 - 16:28 | 1998731 GeneMarchbanks
GeneMarchbanks's picture

Oh yes you are. Occupy can go nuke-ular, the Teabaggers can go apeshit, it matters not.

BTW, should this occur I'd like to say to my American friends, Thank you and you will not regret this decision that the banking cabal made for you. Now back to democracy...

Tue, 12/20/2011 - 16:42 | 1998790 economics1996
economics1996's picture

We already have.

Tue, 12/20/2011 - 18:56 | 1999231 WhiteNight123129
WhiteNight123129's picture

I think Germany would laugh its ass off so much, they would have a Schnapps party at the Bundestag and the Buba if that happens.


Tue, 12/20/2011 - 16:20 | 1998694 MsCreant
MsCreant's picture

**and they already started doing it in 2008.

Tue, 12/20/2011 - 17:45 | 1999021 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

You talkin' 'bout Benny and Barney?  Or Benny and Barkey?  Or Barney and Barkey?  Or Bushy and Barkey?  Or Bubba and Barkey and Bushy?

Tue, 12/20/2011 - 19:42 | 1999338 MsCreant
MsCreant's picture

"Blarney" needs to be on your list somewhere. I'm talking about Blarney, the Ben-o-cide, tho.

Tue, 12/20/2011 - 16:25 | 1998722 MillionDollarBonus_
MillionDollarBonus_'s picture

I have been suggesting this for many months now. I truly believe that this is the ONLY viable policy in the long term. Many US financial institutions have large exposures to European sovereign debt, and a default could seriously harm their balance sheets. The financial sector is a large part of our economy here in the US, so it is in our national interest that our Federal Reserve does everything possible to stabilize Europe. And if that means full-scale debt monetization, then so be it.

Tue, 12/20/2011 - 16:32 | 1998745 mayhem_korner
mayhem_korner's picture

And if that means full-scale debt monetization, then so be it.


ROFL - the truth is so funny!  I'm picturing Ben, goggles and kneepads on, hovering two stories over a 10-foot diameter PRINT button with a big Keynesian grin on his face.  BANZAI!!!

Tue, 12/20/2011 - 16:56 | 1998836 Potemkin Villag...
Potemkin Village Idiot's picture

Yeah... speaking of BANZAI... I'm waiting for WB7 to come out with the foto of Bernanke, while saying he wouldn't monetize the US debt, with a thought bubble above his head thinking... "Ha!ha! I haven't said anything about Eurozone debt"...

Wed, 12/21/2011 - 06:02 | 2000350 zhandax
zhandax's picture

Hey MDB, what do you think would happen if 'Many US financial institutions' were forced to follow centuries old practice in finance and their balance sheets collapsed and they were forced to file bankruptcy due to stupid risks taken on the supposition that the fed would bail them out?   I gotta hear your 'end of the world' scenario.....  Call an early morning committee meting; the ESF is good for the overtime.

Tue, 12/20/2011 - 16:33 | 1998749 GeneMarchbanks
GeneMarchbanks's picture

You tell'em MDB! I'd much prefer this to being an Europeon.

Tue, 12/20/2011 - 16:43 | 1998796 I got the Bull ...
I got the Bull by The Horns - HELP's picture

I agree with you. Provided the Governments of the Euro, wind back their socialist spending programs and restructure their Fiscal systems to ensure co-operation and restraint. If they don't the Moral Hazard will break the Fed in the future.

The economy was starting to recover, although at low interest rates. Recall the European fiasco broke the market recovery. Retirees view their wealth based on their 401K health. Poor health means less spending and a wind back in business investment.

Solving the Euro problems is the first step in the crisis. Adopting Fiscal restraint and bureaucratic efficiency is the next. Adopting modern energy solutions and infrastructure rebuilding is the final step (New Deal 2.0)

Tue, 12/20/2011 - 17:06 | 1998859 hedgeless_horseman
hedgeless_horseman's picture



The economy was starting to recover, although at low interest rates.

I call Bullshit.  US Treasury auctions were coming under real pressure.  That is why the USA attacked the Euro. 

The Fed isn't going to buy any significant European debt.  That would be aiding and abetting the enemy.  This is just more psy-ops to loosen Europe's sphincter for the Eurobond suppository.

Tue, 12/20/2011 - 17:15 | 1998917 GeneMarchbanks
GeneMarchbanks's picture

'The Fed isn't going to buy any significant European debt.'

What's significant?

'That would be aiding and abetting the enemy.  This is just more psy-ops to loosen Europe's sphincter for the Eurobond suppository.'

Who exactly is the enemy now? You realize the Eurobond simply cannot happen within the next couple of years at least? Here is a question: What can be done more covertly, the Fed buying Euro-feces or Europe getting a common Treasury Dprt?

With all the shit the Fed has gotten away with in the last, oh let's say thirty years, I'm not sure the answer is clear.


Tue, 12/20/2011 - 17:26 | 1998951 hedgeless_horseman
hedgeless_horseman's picture



You realize the Eurobond simply cannot happen within the next couple of years at least?

Come now, Gene.  All the hard work has already been done. 

Tue, 12/20/2011 - 19:02 | 1999249 WhiteNight123129
WhiteNight123129's picture

You are both wrong on the enemy. The enemy currency is a non fiat currency from Asia that is innocuous and quite for now. It is not Gold (exactly) though.


Tue, 12/20/2011 - 16:44 | 1998797 GMadScientist
GMadScientist's picture

Why not assess the core problem and eliminate the real threat to their balance sheets: their boards and executives!

Tue, 12/20/2011 - 17:05 | 1998867 True.North
True.North's picture

If the Fed monetizes and the collateral becomes insufficient, can we instate a VAT tax on these countries and treat them like colonies?


Tue, 12/20/2011 - 17:25 | 1998949 eatthebanksters
eatthebanksters's picture

So the Fed loans more money to groups that owe them more than they can afford to repay...hmmmm...why not just loan all the people on main street the money.  When the little people have their debt reduced and balance sheets strengthened don't you think they will satrt spending agian and perhaps stimulate economic growth?  Oh, that's right, but if the Fed does that then Jamie Dimon and his big bank (who won't lend to Main Streeters), along with the other TBTF banks, won't be relevent or neccessary anymore...and god forbid, he couldn't make his $30 million a year fucking people.  (I don't have any problem with someone making bazillions honestly...I just hate crooks).  Time to resetthe system.  Anyone want to get their guns and protest in front of the Fed with me?   I hear the black helicopters again!

Tue, 12/20/2011 - 17:27 | 1998959 Teamtc321
Teamtc321's picture

Yawn MDB, now I'm going to go make you a hot lunch and leave you a napkin. 

Tue, 12/20/2011 - 18:59 | 1999238 WhiteNight123129
WhiteNight123129's picture

LOL, cut the crap will you...?

Tue, 12/20/2011 - 16:38 | 1998775 RMolineaux
RMolineaux's picture

Are they going to buy Israel bonds next?

Tue, 12/20/2011 - 17:04 | 1998865 Sam Clemons
Sam Clemons's picture

Seems obvious.  The whole existence of all central banks depends on keeping the Ponzi scheme going.  They will do whatever it takes to keep the show going.

Tue, 12/20/2011 - 22:26 | 1999789 Milestones
Milestones's picture

I disagree! If the EURO fails, the entire idea of a one world currency fails--dramatically. Europe will collapse momentarily as will the USA and China. Two  to three years. Europe is THE linch pin of the Elites plan in my opinion. 27 Countries to manage into a world currency. I think that may well be the push in the middle east--try and herd those cats and make them into sheep-- a commonality of some sorts. That will also fail.

Then there is 1913. If I am not mistaken their 100 year lease(?) runs out on the FED in 2012. Renewal of that may be the start of a civil war right here in River City. The Boyz may well be rushing this thing due to time constraints. Maybe they'll just settle what they have looted, but I doubt it.

Man, there are enough theories to float a Barnum and Baily Circus with a full Carney runway.        Milestones

Tue, 12/20/2011 - 16:15 | 1998669 hugovanderbubble
hugovanderbubble's picture

Can the ECB be in default? YES

Tue, 12/20/2011 - 16:16 | 1998671 Gubbmint Cheese
Gubbmint Cheese's picture

they will do whatever pushes the stock markets up.. f*ing whores.

Tue, 12/20/2011 - 16:17 | 1998675 mayhem_korner
mayhem_korner's picture



If this was George H.W.'s watch, it would be the "new-cue-ler" option.

BTW, my answer is yes - it's advanced can-kicking, prevent-death-by-trade-deficit strategy.  Fed to merge with ECB, film at 11.

Tue, 12/20/2011 - 16:17 | 1998677 kralizec
kralizec's picture

Stupid is as stupid does...

Tue, 12/20/2011 - 16:18 | 1998681 MsCreant
MsCreant's picture

Has anyone explained the concept of Moral Hazard to Ben? Do they cover that in an Economics Ph.D. program?

Tue, 12/20/2011 - 16:41 | 1998784 RopeADope
RopeADope's picture

Moral Hazard does not have any easily measureable data points, it therefore must not exist.

Tue, 12/20/2011 - 16:49 | 1998813 AldousHuxley
AldousHuxley's picture

moral hazard = bernanke


bernanke exists so moral hazard must exist

Tue, 12/20/2011 - 17:07 | 1998876 Sam Clemons
Sam Clemons's picture

To someone with no morals or sense of justice, it would be impossible to understand moral hazard or even theft.  This is self evident.

Tue, 12/20/2011 - 17:47 | 1999025 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Moral Hazard is a main concept, my dear Ms.  Isn't it ironic how Ben does not follow the rules he outlines in his own textbook

Tue, 12/20/2011 - 16:19 | 1998685 nwskii
nwskii's picture

default answer

"Bush's Fault"

Tue, 12/20/2011 - 16:22 | 1998702 Jolly.Roger
Jolly.Roger's picture

i question the relevance of your comment

Tue, 12/20/2011 - 17:47 | 1999028 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Fine, Bubba's fault

Tue, 12/20/2011 - 16:22 | 1998703 mayhem_korner
mayhem_korner's picture



"default answer" = Freudian slip

Tue, 12/20/2011 - 16:19 | 1998686 GeneMarchbanks
GeneMarchbanks's picture

So... what you're saying(and please correct me if I'm wrong) is we need to bring back RICO?

Tue, 12/20/2011 - 16:21 | 1998697 gwar5
gwar5's picture

I think the FED is the lender of last resort to bail out Europia. The EU is begging for it. They're all inbred anyway. The FED really wants to kick the USD down the stairs and push the EURO back up.


Tue, 12/20/2011 - 16:22 | 1998698 Tsar Pointless
Tsar Pointless's picture

Will? As in the present first-person singular conjugation of the word "is"?

Well, I s'pose it depends on what your definition of "is" is.

Tue, 12/20/2011 - 16:25 | 1998705 firstdivision
firstdivision's picture

I would go with yes, seeing as how today is a massive "risk-on" mania.  Since close yesterday OIX +4%, HYG +1.2%, 10Y +6.2%, 5Y +6.6%, RUT +4%, WTI +3.54%, Ag +2.42%.  Gold has had a muted movement compared to everything else.  Someone knows something as this move seems insiderish to coordinated.

The interesting caveat to the movements today is that the EUR gave up it's overnight gains as the day went on.  So is the ECB going to print?

Tue, 12/20/2011 - 16:28 | 1998732 mayhem_korner
mayhem_korner's picture

Gold has had a muted movement compared to everything else.


How does that stand up if you use say, a year-to-date perspective?

If you go by today's CNBC's orgasmic headline, one would think stocks are at all-time highs.  Yet the S&P 500 is still under water for 2011, and that's not adjusting for inflation.

Tue, 12/20/2011 - 17:03 | 1998861 firstdivision
firstdivision's picture

True, but I'm talking about relative movements since close yesterday.

Tue, 12/20/2011 - 16:22 | 1998706 joseywales
joseywales's picture

Could this be the reason for the two-way FX swap lines?  If the Fed just prints money and buys European sovereign bonds, then the Fed is at risk to sovereign default.  However, if the Fed prints and gets foreign currency via FX swap lines from ECB and then buys European sovereign bonds, then the Fed has a little more leverage upon a soverign default.  Namely, it reneges on the ECB swap line (which is a creature backed by European sovereigns) and creates a setoff to use against its claim under the defaulted soverign bonds.

Tue, 12/20/2011 - 16:46 | 1998801 economics1996
economics1996's picture

The Fed is leveraged 56-1 now, whats a few more turds in the basket.

Tue, 12/20/2011 - 16:23 | 1998710 topcallingtroll
topcallingtroll's picture

Bernanke has been clear in his testimony that he wont be buying bonds for the fed account.

I think he is too leery of congress to even buy foreign bonds indirectly such as thru the IMF.

Tue, 12/20/2011 - 16:29 | 1998733 HelluvaEngineer
HelluvaEngineer's picture

Thanks for the chuckle.

Tue, 12/20/2011 - 16:29 | 1998738 MsCreant
MsCreant's picture

He has lied to congress before and gotten away with it. What's different now? Our ire? Our awareness? Seriously.

Tue, 12/20/2011 - 16:36 | 1998761 HelluvaEngineer
HelluvaEngineer's picture

Please.  Congress doesn't even care.  They're in on the sham.

Tue, 12/20/2011 - 16:49 | 1998812 falak pema
falak pema's picture

the people have one atom bomb weapon ;their vote! Its election year! 

Tue, 12/20/2011 - 18:07 | 1999096 RobD
RobD's picture

Yes that is true but the Bernanke is not up for election so what is your point?

Tue, 12/20/2011 - 19:39 | 1999334 falak pema
falak pema's picture

Potus rules over BB in a normal government, if Potus is not afraid of being assassinated, he can fire BB any day of the week. And shut down the ponzi. We are there, we need a man at the top who is not afraid to die, and who wins over key elements in the defense, state and finance sectors of Admin to his side. I mean high level admin people and relays in private enterprise. Not every key man in the Pentagon, in State, in FED, in Treasury is part and parcel of ponzi. These circles of crime, 'cos this is what it is, have to be selective by definition. The ponzi is run by a bunch of key people all networked together through common interest and back up in corporate world. So you need top people on the people's side who are ready to die for it and PROSECUTE BIG TIME To correct it. If you have a resolute HEAD man the army immediately forms. The ground swell is there!

That's my point. And the people should vote for these men. THe more the pain, the more the determination. Champagne cork principle! 

Tue, 12/20/2011 - 16:23 | 1998712 dumpster
dumpster's picture

do ducks quack

Tue, 12/20/2011 - 16:26 | 1998725 MsCreant
MsCreant's picture

Lots of bears shitting in the woods right now...

Tue, 12/20/2011 - 16:48 | 1998808 GMadScientist
GMadScientist's picture

D'you mind? i can't go when you watch.

Tue, 12/20/2011 - 16:52 | 1998822 WonderDawg
WonderDawg's picture

Not the ones who understand the real deal. We're salivating at what might be the last opportunity to go short at higher prices.

Tue, 12/20/2011 - 16:24 | 1998715 carbonmutant
carbonmutant's picture

Is there any doubt that Congress backed off on the Payroll tax extension so we'd have enough extra to bailout the EU...?

Tue, 12/20/2011 - 16:27 | 1998728 MsCreant
MsCreant's picture

Extra, hehehehe, hahahahaha, hohohoho, stop it your killin' me! Let me breathe. Extra. Ah ha ha ha ha...

Tue, 12/20/2011 - 16:42 | 1998791 carbonmutant
carbonmutant's picture

Euphemistically speaking...

Tue, 12/20/2011 - 16:24 | 1998719 alfred b.
alfred b.'s picture


   I had no idea that they had ever stopped !!!!

Tue, 12/20/2011 - 16:25 | 1998721 RopeADope
RopeADope's picture

I am reminded of a hamster on a wheel for some reason...


The Federal Hamster Board had better make sure that wheel is greased as that little guy is hitting some impressive speeds.

Tue, 12/20/2011 - 16:50 | 1998816 NoMoreDebt
NoMoreDebt's picture

Imagine if we could hook the wheel up to a generator and all the green power it would produce.  Suggest $1B DOE loans to be approved at mighnight. 

Tue, 12/20/2011 - 16:50 | 1998817 NoMoreDebt
NoMoreDebt's picture

Imagine if we could hook the wheel up to a generator and all the green power it would produce.  Suggest $1B DOE loans to be approved at mighnight. 

Tue, 12/20/2011 - 16:30 | 1998743 dcb
dcb's picture

see this is where things get funny. the bernank spoke the other day and said the fed didn't have the authority to bail out european banks. but you see he does. I mentioned that it was in fact a lie, and it just had to do wi8th the way he classified bail out. yep he has the authority and ability to bail out european debt. maybe we will do a qe on the euro bonds as well.

the man needs a ice pick to the medulla oblongotta

Tue, 12/20/2011 - 16:33 | 1998751 mayhem_korner
mayhem_korner's picture



So who's gonna bailout the bailers?

Tue, 12/20/2011 - 16:36 | 1998764 MsCreant
Tue, 12/20/2011 - 17:01 | 1998851 AldousHuxley
AldousHuxley's picture

your children

and your grandchildren

Tue, 12/20/2011 - 18:44 | 1999188 cranky-old-geezer
cranky-old-geezer's picture



Fed is like a black hole.  They buy crap securities from banks (with freshly printed cash), and now crap Euro debt too, and all that crap paper more or less vanishes from the market.  Fed can hold that stuff forever, and say it's worth whatever they want it to be worth.

Because Fed has no accountability to anyone. 


Tue, 12/20/2011 - 16:33 | 1998752 dumpster
dumpster's picture

bernake quacks like a duck

Tue, 12/20/2011 - 17:09 | 1998890 AldousHuxley
AldousHuxley's picture

watch out Bernanke....Chinese like their ducks crispy....

Tue, 12/20/2011 - 16:36 | 1998763 geno-econ
geno-econ's picture

"Free market capitalism is not free, not based on market principles and debases capital. Why are we trying to save a wet dream that has no relevence to the consequences of a  global economy ?  Because the Western world is in denial and has therefore become corrupt before the final act of systemmic collapse".  Ben Benanke in his final address to Congress proir to his retirement in Dec, 2012

Tue, 12/20/2011 - 16:37 | 1998768 grid-b-gone
grid-b-gone's picture

If the Fed can talk member banks into agreeing to let it backstop their shaky european investments, then yes, the Fed will buy European bonds.

To keep their word, they may buy them through an intermediary, though. That way, everyone has been told the truth and the intended end result is still accomplished.

Tue, 12/20/2011 - 16:40 | 1998779 sitenine
sitenine's picture

Folk's it's come down to this.  Who is going to barrow from whom and at what price?  Dudley is a complete idiot if he believes that Europe has any unpledged collateral of any kind, 'Appropriate haircuts' constitutes, oh I'd say, somewhere around 100%.  Fine, the Fed will eventually bail out Europe, and never be repaid.  My question is, what then?  How does the Fed unwind it's balance sheet in 5 or 10 years?  I'm sure they must have a plan, right?

Tue, 12/20/2011 - 16:41 | 1998788 MsCreant
MsCreant's picture

They will own europe? And the US?

Tue, 12/20/2011 - 16:50 | 1998814 sitenine
sitenine's picture

That depends, and I don't know the answer.  When the SHTF, will the central banks be considered 'senior creditor', and own everything pretty much by default?  Then I suppose they will conspire to sell off the planet to the highest bidder?  OK, but that just makes me need to ask another question.  If the central banks own everything, are they taking 'money' in exchange for the assets they own.  At that point, who determines what 'money' is?  This is not making a lot of sense real quick.  Maybe someone can help me out here?

Tue, 12/20/2011 - 17:00 | 1998844 MsCreant
MsCreant's picture

Holy shit friend, you are still trying to make sense of this. Wow!

The financial system is insolvent. All the banks are bankrupt. All the governments are bankrupt. The TBTFs? Bankrupt. All that you see in the news is theater to hide this truth. This summit, that meeting, this funding entity, that plan. They are working their asses off to keep reality as the folk take it for granted, up and running. So far, so good. They are trying to keep too many things from looking like they have failed at the same time, otherwise there will be a loss of confidence.

The Feds balance sheet is another one of these absurdities.

I was cracking a joke with you about them owning everything. I am sure if all of us bought into that idea, they would too. We won't. To say more on this is unlady like.

Tue, 12/20/2011 - 17:42 | 1999012 Potemkin Villag...
Potemkin Village Idiot's picture

The financial system is insolvent. All the banks are bankrupt. All the governments are bankrupt. The TBTFs? Bankrupt.

...and that's the good news... Wanna hear the bad?

Tue, 12/20/2011 - 17:56 | 1999062 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Good convo you!

So after the ECB and Fed buy all of their own assets (I know, it is very inbred of them) then the reset happens and the IMF/World Bank say, "Here, we'll help you....but we want your gold as collateral."  Since the sheep of the world have been taught gold is a barbaric relic, then the hope, the hope is that the People of the world will say, "As you wish IMF/World Bank" and life will go on, with the IMF/World Bank running monetary policy for everyone.

Tue, 12/20/2011 - 17:28 | 1998961 grid-b-gone
grid-b-gone's picture

Good point. When fiat currencies eventually fail, the value of everything gets repriced in precious metals. Only the senior creditor gets to convert.

Today's gold price must consider the net value of post-fiat collapse divided by resources that will replace fiat currency. Basically, the net value of post-fiat earth, priced in PMs and any resource or other residual stores of value.

If the pool of future buyers becomes too small, even earth priced in PMs could be surprisingly cheap.

TPTB probably don't understand how much of their wealth comes from the average worker putting in 40 hrs and then quickly putting that store of value back into the economy. Ownership is only a benefit when a pool of buyers is willing to bid their price.

Tue, 12/20/2011 - 17:39 | 1999003 sitenine
sitenine's picture

I remember we all used to believe something like that.

Wasn't it called "price discovery"?

Tue, 12/20/2011 - 16:51 | 1998819 GMadScientist
GMadScientist's picture

'Barrow'...nice Freudian slip.

Tue, 12/20/2011 - 18:50 | 1999213 cranky-old-geezer
cranky-old-geezer's picture



How does the Fed unwind it's balance sheet in 5 or 10 years?

Fed never has to unwind its balance sheet. 

Fed can buy worthless crap securites (and worthless crap sovereign debt paper now) till their balance sheet is 100 trillion, 200 trillion, whatever, it doesn't matter.

Tue, 12/20/2011 - 16:40 | 1998780 FubarNation
FubarNation's picture

When I get my new shiny 'Bank of the World' account will I have to go through all the 'know your customer' and Homeland gestapo bullshit?  Or can I just scan my fucking implant?

I better get a toaster or fanny pack.


Tue, 12/20/2011 - 17:45 | 1999023 Potemkin Villag...
Potemkin Village Idiot's picture

You'll get nothing & like it...

~Judge Smails

Tue, 12/20/2011 - 16:40 | 1998782 unionbroker
unionbroker's picture

like i tell my friends enjoy your life because there is nothing you can really do to protect themselves from what is to come .This thing just gets bigger and uglier every day.

Tue, 12/20/2011 - 16:42 | 1998792 LouisDega
LouisDega's picture


Tue, 12/20/2011 - 16:47 | 1998804 vegas
vegas's picture

Of course they will. They have no other options available to them except to print. Otherwise the system collapses and it's game over. The only question is when to buy ink futures.

Tue, 12/20/2011 - 17:03 | 1998863 walküre
walküre's picture

It's game over anyhow for many banks. They're trying to soften the blow, mitigate the fall-out and so on but the inevitable outcome is already very clear. You cannot fool all of the people all the time.

Short of Fed announcing Marshall Plan like rescue package of Europe with the most stringent conditions over 10 years, I can't see them doing anything else.

It's all bearish and whatever the efforts, the results are a major correction and CONTRACTION of the global economy.

Growth is a fantasy.

Tue, 12/20/2011 - 16:50 | 1998815 Jlmadyson
Jlmadyson's picture

A miracle for France to keep AAA status is the latest headline. Oh ho ho ho says Benny!

Where the heck is S&P. So quiet.

Tue, 12/20/2011 - 16:51 | 1998818 falak pema
falak pema's picture

the nuclear option is to protect the Oligarchs, the empty pockets is to protect the sheeple; keep moving people our pockets are empty! 

Tue, 12/20/2011 - 16:51 | 1998821 Snakeeyes
Snakeeyes's picture

The Fed isn't supposed to purchase foreign bonds. Then again, they weren't supposed to buy credit sensitve bonds like Maiden Lane (but they did). In a crisis, The Fed can do anything it wants, I guess.

Clash of the Titans: Fed Versus ECB Balance Sheets. ECB Offers As Much Money As Banks Want for 1,124 Days!

My guess is YES, they will go all out to save Europe. That was in my House testimony.

Tue, 12/20/2011 - 16:53 | 1998827 youngman
youngman's picture

This NOW is not about the banks...the banks could survive a default...this is all about the shadow banking system..and no one can survive that...there are so many bets and betters than no one can cover a loss...and they are still betting today....when you are in trouble..double down..Bernanke will use grey words.....he will be very careful what he says...remember he just said they had no "plans" to bail out the EU...but that does not mean they can not...he is smart and very what he says..and listen to what he says...there will always be an opening for anything...

Tue, 12/20/2011 - 16:59 | 1998843 walküre
walküre's picture

not in an election year.

Tue, 12/20/2011 - 17:01 | 1998850 Mike Cowan
Mike Cowan's picture

Just saw documentary on Pierre Laval. Would have fit in well at today's Fed.

Tue, 12/20/2011 - 17:02 | 1998853 yogibear
yogibear's picture

Sure Bernanke will buy. Bernanke is helecopter Ben, he will buy everything. 

Bernanke and the Federal Reserve has become like a financial black hole. Greece, France, Italy, Spain, Portugual, Japan and Ireland make sure you funnel all you garbage non-performing debt to Ben Bernanke and the US federal Reserve.

This is the time other countries need to funnel all non-performing debts to Ben Bernanke and the US Federal Reserve to preserve their lifestyles.  Do it while you can.

Load up Ben Bernanke and the Ferderal Reserve with trillions because their sucking it all up. 

Ben Bernanke and the US Federal Reserve is out to save everyone.


Tue, 12/20/2011 - 17:03 | 1998856 Sudden Debt
Sudden Debt's picture

It kind of makes me fucking sick that every time it's pretty sure both sides will print that the market goes green. I even bet almost not a single retail investor will profit from it.

If and it will, tomorrow the markets also close green, it means it's a done deal.

Tue, 12/20/2011 - 17:04 | 1998866 winningfastball
winningfastball's picture

According to the analysis of Jim Rickards in his book Currency Wars, this FED "strategy" fits in with the notion that the US has a vested interest in the continued to proping up of Euro relative to the USD. 

Tue, 12/20/2011 - 17:08 | 1998882 supermaxedout
supermaxedout's picture

Its only logical that the Fed buys European debt.

Now its out that the ECB is not printing and buying the debts of the European countries in trouble. The second best solution is that the Fed is now doing it. Its a great thing, the Fed is printing Dollars buying European debt and selling it then for Euros in the secondary market for a cheaper price back to the original issuing country. The perfection of the Ponzi scheme! Mr. Madoff would be proud of Mr. Bernanke. He is his best apprentice. 

This has two advantages: 1) The Fed has found a way to spread its newly printed Dollars and

2) Now the Fed has the possibility to dump European souvereign debt andy time they want thus they have a direct influence on the price.

And the tricks is I think as follows: The Fed sells the European debt on the secondary market for a deep discount and the European souvereigns buy it there with lets 30% discount.  The money needed for this purchases is  loaned from the banks. So in the end the European countries in need sell first for full price to the Fed and reduce their debts in reality in the following step by lets say 30%

 So at the end the souvereigns do officially not default because the Fed simply pays lets say 30% more as it is worth for the banks.

For the banks is good business too. They earn of course a commission plus they have received the full payment for the old debts which can now be paid because the Fed is buying the new debt at first for the full face value. There is no default at all. Everybody is happy but somehow its stinks to heaven.

I wonder how this is going to end.

Tue, 12/20/2011 - 17:13 | 1998903 topcallingtroll
topcallingtroll's picture

That is where the last bit of spyware/trojan came from.

You guys know not to click on any links or attachments when you get an email from "google" or others with an "update."

Save them. They have sent the same one to me twice now. I presume to be from government for my inflammatory comments. I presume it is government because my antivirus scanned it and didnt recognize it. That one may be valuable so I gave it to a couple of friends.

If it is not an attachment but a link save it on a junk computer just dont run it.

I used to laugh at you paranoid types. However I suppose these could just be from zombie spammers who hijack the computer to spam others, but all the other ones but this were tecognized by my antivirus programs.

Tue, 12/20/2011 - 17:19 | 1998934 topcallingtroll
topcallingtroll's picture

"Google active" is another one where they say your gmail has been dormant and to send them a bunch of info to verify you are the account owner.

Why isnt google warning people about scams in their name?

Tue, 12/20/2011 - 19:37 | 1999328 smiler03
smiler03's picture

Because the stupid get what they deserve.

Tue, 12/20/2011 - 17:43 | 1999015 I got the Bull ...
I got the Bull by The Horns - HELP's picture

Quick Vote


Thumps up if: You are really intelligent, but did your dough (Private or Institutional) and you are mad as hell at the elite Squid Vampire TBTF Cabal


Thumbs down if: You are associated by bloodline (no matter hpw distant) to the above elite crime family.

Tue, 12/20/2011 - 17:53 | 1999041 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

My grandma spent decades researching our family and found out we are related to Robert the Bruce and Elizabeth.  Then my dad told me everyone from the Isles is related to Robert the Bruce and Elizabeth.

Tue, 12/20/2011 - 17:50 | 1999036 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Ben is going to rehypothecate all of you debt/money, bitchez!

Tue, 12/20/2011 - 17:56 | 1999059 I got the Bull ...
I got the Bull by The Horns - HELP's picture

Don't you realise. The goal of the Fed over 15 years ago was to reduce interest rates, keep inflation within 3 %. All central banks followed the same BIS script.

If the economy suffered from too much debt, and now their solution is even lower interest rates, it does not matter. The end goal was US citizen debt, default and possible bankruptcy.

How can US Citizens flee when they are bankrupt. You can't get a passport.

Chomsky predicted this year ago. A nation of serfs. Cheap labour.

If they print money, the benficiaries will be the ones with access to ZIRP cheap money.

As a recipient of ZIRP money, you can exchange those new crisp bills (Or do a direct credit transfer and save on printing costs) for nice farmland, hookers, and other trinkets, going penny on the dollar.

Tue, 12/20/2011 - 18:18 | 1999127 KCMLO
KCMLO's picture

Haven't we done this already?  I thought a lot of the QE2 funds suddenly appeared in European banks in the quarter after it was all said and done?  First the Fed buys US treasuries off the Europeans then they buy THEIR treasuries off them?  Kind of bass ackwards.

Tue, 12/20/2011 - 19:34 | 1999312 ebworthen
ebworthen's picture



Bernanke at keyboard of FED Hal 9000 last night:

Ctrl + Shift + $PANI$H BOND$ + buy @ infinity and beyond until  = yield < 5.15%

Tue, 12/20/2011 - 19:26 | 1999314 Bullwinkle Moose
Bullwinkle Moose's picture

And so passes into history, the US dollar.

Tue, 12/20/2011 - 19:37 | 1999326 besnook
besnook's picture

they are already doing it. why do you think eurotrash bonds have come in. buy all the eurotrash bonds you can buy. the us cavalry, bernank division, is coming to save the day.

Tue, 12/20/2011 - 19:41 | 1999337 I got the Bull ...
I got the Bull by The Horns - HELP's picture

Increased home starts signal the end of the bear market


Looks like the USA will be for sale too.

Tue, 12/20/2011 - 20:27 | 1999438 dumpster
dumpster's picture

increase  home staRTS LOL

MORE LIKE CHANNEL stuffing .. builders building multi rent propertys ,, to keep working .. only place to get a construction loan . and keep the paychecks coming

an over the rent propertys are sprouting like mad .. just to find in a year or two an overbulit market.

single family  homes down

more BS from the propaganda pavlovian bell ringers

many just stoop down and lick the gruel from the pot

Tue, 12/20/2011 - 23:19 | 1999888 swani
swani's picture

The Fed will most definitely monetize this Euroexcrement, they have no choice but to double down or they're toast, and better yet, this is part of a long term plan to do to the US, what these same Central Banks have done to Chile, Argentina and many other countries throughout history. It's how they take all the valuable bootie for nothing. And it works every time.


Wed, 12/21/2011 - 00:31 | 2000050 swani
swani's picture

@ topcallingtroll

I used to laugh at paranoid types too, but now, some of what they have been saying ,unfortunately, has started to sound more and more plausible, certainly, they are making more sense than the explanations that we are hearing from our politicians or the MSM to explain, why on earth, they felt they had to rush the passing of the NDAA, in secret, and without a debate, for example.

After announcements like this, the total media blackout of Ron Paul, the black out of almost everything that should be front page news like the passing of the NDAA for that matter, the conspiracy theorists get more and more credence every day. And then, there are other things that make you go hmmmmm...

For example; the die hard conspiracy theorists believe there are child pornography rings supported by the child protective services, the Vatican, and other 'charities', and that these are used so that pedophile politicians can be given children to abuse and then blackmailed later with this information. They are also convinced that September 11th was an inside job. They claim that there was Chinese Gold being held by the Fed and the Chinese asked for it back in early 2001 with Cantor Fitzgerald acting as their fiduciary and that TPTB planned to steal it to use for the issuing of the new currency after they collapsed the dollar. They have been saying that this plan was going to be put into place after Martial Law was declared, using the Patriot Act that was an exact copy of the Nazi Constitution to detain all dissidents, after starting WWIII by staging a false flag between Iran and Israel as the trigger. They also believe that MF Global was a hit to cover JP Morgan's silver shorts. 

This just sounds absolutely insane, I mean you don't want to believe such things are possible.

Then, we hear that former FBI director Louis Freeh, most famously known for botching the September 11th investigation, has been appointed as an MF Global trustee, and, by Penn State to 'investigate' the Sandusky situation, where we all know a DA disappeared after investigating in '05 and rumor has it; kids were being pimped out to wealthy donors and politicians through Sandusky's charity with the full knowledge of  Penn State President Graham Spanier. Then, you hear that Graham Spanier was the President of the University of Nebraska during the Boys Town pedophile scandal and while there was a big proponent of writing Anti-Piracy and file sharing legislation with Al Gore.

I hope that it is a coincidence that Freeh is the go to man to investigate all of these things and he's just a good guy who is there to get to the truth.

I just want to go to sleep tonight and wake up in another time when  accusations about FEMA camps and government agencies covering up for pedophile rings, sounded absolutely nuts. Maybe I'll wake up tomorrow and it will be 1996 instead of 1984.











Wed, 12/21/2011 - 04:56 | 2000323 I got the Bull ...
I got the Bull by The Horns - HELP's picture

I just accept it as fact. It makes me feel better. They can't take away my free mind.

What do we do? Nothing. When is Zero Hedge going to organise a protest. With real goals. Never. Because they make money off the advertisment on the site, and provide infotainment for we the papranoid people.

Wed, 12/21/2011 - 07:47 | 2000417 swani
swani's picture

@ I got the bull

You know, I think that people feel powerless when faced with a superior enemy or at least one that feels so powerful, but everyone has to remember that most people have a conscience and most people don't want to be manipulated, lied to, or used to cause suffering to others. Sure, there are sociopaths and sadists that feel nothing or enjoy causing pain, but those people are in fact raririties in the general population. Even people within the system feel terrorized and appalled by it, of this I am sure.

Do we really think that all of the journalists that work for the MSM want to be violating everything that they were taught in school about being real journalists? Do we think that all politicians enjoy selling out their constituencies? Do we think Generals don't feel guilt sending their men to die, not to protect the Constitution of the United States or American people from harm, but for the profit of a few?

People lie to themselves and rationalise that the ends justify the means, tell themselves that they have no choice, or that what they're doing is not that bad. That's why it's so important to expose the truth every chance that we get and lend our support to all of the good people that are fighting injustice as we must remember that there are a great many out there fighting it right now.

If people remember the way that bullies terrorized kids at school while others watched, hating it, but staying silent because they didn't want to be next in the firing line, until someone, stood up, and gave others courage to do the same.  

I think it is important for all of us to do our part to resist the agenda that is currently in place and for all of us to do something proactive, not just in our thoughts, but externally, every single day, to make progress in the good.

The fact that people are waking up all over the world is the beginning of real change, and I know, that although it will be a tough road ahead, we will be victorious in the end.







Wed, 12/21/2011 - 09:24 | 2000596 dcb
dcb's picture



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