This page has been archived and commenting is disabled.

When Fed Doves Cry: Chicago Fed's Evans Urges "Very Significant Amounts" Of Added Accommodation

Tyler Durden's picture


Today's first Fed speech is out, this one by Chicago Fed dove, Chuck Evans who was recently interviewed by Russian speaking, guitar playing, arch-Keynesian Steve Liesman and dropped the first QE3 bomb a week ago, in which he basically says what he said before, namely that "very significant amounts" of added accommodation are needed. In other words: more of the same, and this time it will be different. After all 12 Fed presidents and 1 chairman can't all be insane all the time.

More soundbites from Bloomberg:

  • U.S. economic outlook has “weakened substantially.”
  • Conditions still “aren’t much different” from recession
  • “Resource slack” puts downward pressure on prices
  • Aggregate demand in U.S. is “much too low”
  • Sees U.S. inflation rate falling below 2%
  • Fed’s August 9 decision “step in the right direction”
  • Rate should stay low until unemployment falls to 7%-7.5%

And the kicker:

  • Fed should "not be afraid" of temporary higher inflation

Correct: the Fed shouldn't. But despotic dictators everywhere, if any are actually left after the Arab Spring, and let's not forget inflation importing China, certainly should be.

Full speech:

The Fed's Dual Mandate Responsibilities and Challenges Facing U.S. Monetary Policy


In the summer of 2009, the U.S. economy began to emerge from its deepest recession since the 1930s. But today, two years later, conditions still aren’t much different from an economy actually in recession. GDP growth was barely positive in the first half of the year. The unemployment rate is 9.1%, much higher than anything we have experienced for decades before the recession. And job gains over the last several months have been barely enough to keep pace with the natural growth in the labor force, so we’ve made virtually no progress in closing the "jobs gap".


The Federal Reserve has responded aggressively to the deep recession and weak recovery, cutting short-term interest rates to essentially zero and purchasing assets that expanded its balance sheet by a factor of three. But since undertaking the so-called QE2 round of asset purchases last fall, the Fed’s aggressive policy actions have been on hold.


Some believe that this pause is entirely appropriate. They claim that the economy faces some kind of impediment that limits how much more monetary policy can do to stimulate growth. And, on the price front, they note that the disinflationary pressures of 2009 and 2010 have given way to inflation rates closer to what I and the majority of Fed policymakers see as the Fed’s objective of 2%. These considerations lead many to say that when adding up the costs and benefits of further accommodation, the risk of over-shooting our inflation objective through further policy accommodation exceeds the potential benefits of speeding the improvement in labor markets.


I would argue that this view is extremely, and inappropriately, asymmetric in its weighting of the Fed’s dual objectives to support maximum employment and price stability.


Suppose we faced a very different economic environment: Imagine that inflation was running at 5% against our inflation objective of 2%. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn’t any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market.


In the United States, the Federal Reserve Act charges us with maintaining monetary and financial conditions that support maximum employment and price stability. This is referred to as the Fed’s dual mandate and it has the force of law behind it.


The most reasonable interpretation of our maximum employment objective is an unemployment rate near its natural rate, and a fairly conservative estimate of that natural rate is 6%. So, when unemployment stands at 9%, we’re missing on our employment mandate by 3 full percentage points. That’s just as bad as 5% inflation versus a 2% target. So, if 5% inflation would have our hair on fire, so should 9% unemployment.


Today, I would like to explore further the implications of the Fed’s dual mandate framework for monetary policy-making in today’s environment. And don’t worry, the views I am about to express are my own and not necessarily those of my Federal Reserve System colleagues.

Brief Update on the U.S. Economy


It’s useful to start with a brief update on the U.S. economy. The economic outlook clearly has deteriorated this year. Early in 2011, most forecasters thought that the recovery was gaining traction and that economic activity would increase at a solid—though not spectacular—rate this year and next.


The financial repair process seemed to be progressing well, and, at least among large firms with access to the bond market, borrowing costs were quite low. We also had finally begun to see a long-awaited improvement in labor market conditions, with private job gains running about one-quarter million per month during the winter of 2011 and the unemployment rate falling about 1 percentage point over a four-month period. Higher prices for energy and other commodities were taking a bite out of purchasing power and the disasters in Japan were a drag, but these influences were expected to be temporary and growth was expected to strengthen.


The news over the past several months has proved this forecast wrong. Gains in employment have slowed markedly, and the unemployment rate has edged back up over 9%. The earlier improvements in labor markets now appear to have reflected the lagged influence of previous output growth and not—as we had hoped--the start of a virtuous circle of hiring and spending. Furthermore, revised data now indicate that real GDP began to decelerate in late 2010 and then barely edged up in the first half of this year. Consumer spending was particularly sluggish. Importantly, the weakness in growth began before the bulk of the effects of higher energy prices hit the economy and before the disaster in Japan. This timing, and the continued softness of most economic indicators into the early summer, indicates that the headwinds facing consumers and businesses are even stronger than we thought.


What are these headwinds? First, even though credit conditions overall have been improving, many households and small businesses still seem to be having trouble getting credit. In addition, the repair process in residential real estate markets is painstakingly slow, and households are still in the process of paring debt and adapting to the huge losses in real estate and financial wealth that they experienced during the recession.


Of course, these forces are not new—indeed, they are important reasons why in this cycle forecasters never predicted rapid gains in output such as those that followed the deep recessions in the 1970s and 1980s. But they now appear to be even deeper and more persistent than we thought earlier in the year.


Many households and business may still feel they have inadequate buffers of assets to cushion against unexpected shocks. This leads to cautious behavior that holds back spending. For example, I regularly hear from business contacts that they do not want to risk hiring new workers until they actually see an uptick in demand for their products. They do not appear to be paring back at the moment, but they would rather sit on cash than risk undertaking a potentially unprofitable expansion. In addition to these long-running problems, continued uncertainty about the European debt crisis and the difficulties dealing with the U.S. fiscal situation have held back growth.


Against this backdrop, the outlook has weakened substantially. Last June, most private sector forecasters were expecting real GDP to increase 2-3/4% in 2011 and 3.1% in 2012. By early August, these forecasts had dropped to 1.6% and 2.7%, respectively. This 2012 growth rate is barely above most analysts’ views of potential growth—so it certainly won’t make much of a dent in the unemployment rate and other measures of resource slack.


On the price front, with energy prices increasing markedly, headline inflation – as measured by the 12 month change in the total personal consumption expenditures price index - rose from about 1-1/4% last fall to 2-3/4% in July. Excluding food and energy, PCE inflation has moved up from about 1% to 1-1/2% over the same period. Energy prices have dropped sharply over the past month and the prices for many other commodities also have softened. And with the unemployment rate still high and capacity utilization low, resource slack is likely putting downward pressure on prices. In addition, market measures of longer-run inflation expectations are at the low end of the range they have been running since last November.


Putting these factors together, my outlook is for overall inflation over the medium term to fall back towards core and remain below the 2% level I see as consistent with the price stability leg of the Fed’s dual mandate.

Monetary Policy and the Dual Mandate


In my view, central banks should focus on medium-term inflation. Over shorter periods, measured inflation rates are affected by all sorts of short-term influences, such as fluctuations in food and energy prices that are beyond the control of monetary policy. Furthermore, there are significant lags before policy actions influence inflation. So reacting too strongly to short-run influences simply adds noise to the policy-making process.


So, by this appropriate standard I think inflation likely will be below our goal of 2%. And of course, unemployment is much above its natural rate. Thus, at the moment, there is little conflict between our two goals. Both suggest at least some additional monetary policy accommodation would be helpful. However, given how truly badly we are doing in meeting our employment mandate, I argue that the Fed should seriously consider actions that would add very significant amounts of policy accommodation. Such further policy accommodation does increase the risk that inflation could rise temporarily above our long-term goal of 2%.


But I do not think that a temporary period of inflation above 2% is something to regard with horror. I do not see our 2% goal as a cap on inflation. Rather, it is a goal for the average rate of inflation over some period of time. To average 2%, inflation could be above 2% in some periods and below 2% in others. If a 2% goal was meant to be a cap on inflation, then policy would result in inflation averaging below 2% over time. I do not think this would be a good implementation of a 2% goal.1


With this in mind, I want to discuss the nature of policy-making under a dual mandate when we are far from our goals.

What’s a Central Banker to Do? (Warning: Math Ahead)


Normally, the deviations of the real economy and inflation from our objectives are small enough that any conflicts are minor. And the well-known Taylor Rule captures normal policy adjustments well, appropriately weighting output gaps and inflation deviations in the setting of our policy rate. However, the Taylor Rule is a rule-of-thumb, whose claims of empirical validity are based on its ability to track policy during periods of relatively modest volatility.2 The current recession is outside of the empirical experience of Taylor Rules calibrated to describe Federal Reserve actions.


We need to look beyond heuristic descriptions like the Taylor Rule to a more complete analysis of optimal monetary policymaking within a dual mandate framework. This topic has been studied extensively in the macroeconomic literature. Interestingly, one of the first modern treatments is due to John Taylor in an article published in Econometrica in 1979.3 This framework continues to be a mainstay of optimal policy analysis, as evidenced by a large literature that includes work by Michael Woodford in recent years.4 Taylor expresses the central bank’s dual-mandate objective as monetary policymakers attempting to minimize the weighted sum of squared deviations of inflation and the level of output from their goal values. That is, a central bank attempts to minimize a simple quadratic loss function like the following:


L = (? – ?*)2 + ? * (y – y*)2


Here ? and y are inflation and the (natural) logarithm of output, and ?* and y* are the policy goals for these variables. In most formulations, y* is the log of the level of potential output—the level of output at which resource slack has a neutral influence on the level of inflation. Thus, (given the properties of logarithms) y – y* is the usual output gap, the percentage difference between actual and potential output. And ? – ?* is the gap between the actual and desired rates of inflation. Ideally, we’d like both of these gaps to be zero, but this usually won’t be the case. We measure the costs associated with the overall deviation of actual outcomes from the ideal with the quadratic loss function L. Note that for each policy goal, this loss function equally weights same-sized misses above and below target.


The coefficient ? determines the relative weight policymakers give to their misses on real output versus those on inflation. If ? is equal to 1, then a 1 percentage point deviation of inflation from its target gets the same weight in computing the overall costs of being away from the optimum as a 1 percentage point deviation of output from its potential.


However, Ken Rogoff (1985) and others have argued that, in order to avoid inflationary biases that might creep into policy, a good, conservative central banker ought to conduct policy as if ? were less than one.5 It’s reasonably conservative to set ? equal to ¼. That means the costs of a 1 percentage point output gap are judged to be only one-quarter as high as the costs of a 1 percentage point deviation of inflation from its goal. So a ? of ¼ puts a good deal of weight on keeping inflation near its goal.


Given that the Fed’s mandate is expressed in terms of employment, it is helpful to recall Okun’s Law, which says that a 1 percentage point gap between actual and potential output corresponds to a one half percentage point gap between unemployment and its natural rate. Making this translation in the loss function, we see that the conservative central banker attempts to minimize the equally weighted sum of squared inflation and unemployment deviations:


L = (? - ?*)2 + 1 * (u – u*)2

where u and u* are the actual and natural rates of unemployment6


The bottom line is that a conservative and tough-minded central banker can still value deviations in unemployment from the natural rate equally with deviations in inflation from its target. Accordingly, an inflation rate of 5% against an inflation goal of 2% presents this policymaker with an equal-sized loss as a 9% unemployment rate against a conservative estimate of 6% for the natural rate of unemployment. (I call this conservative, because while we think a number of factors such as increased job mismatch and extended unemployment insurance benefits have temporarily boosted the natural unemployment rate in the U.S., these factors are not expected to persist in the long-run).


There also is an immediate corollary: If you aren’t as riled up over 9% unemployment as you would be over 5% inflation, then you either put even less weight on unemployment deviations in your loss function or you think that the natural unemployment rate is substantially higher than 6%.


I’ll address the latter possibility later. However, I now want to turn to reasons why the challenges to policymaking in the current situation are orders of magnitude larger than those we face during more normal times. To preview, these are because: (a) we find ourselves in the aftermath of a Reinhart-Rogoff type financial crisis, which has resulted in severe headwinds weighing on the recovery process; (b) the economic costs of the vast amounts of unused resources in the economy are very large; and (c) the zero lower bound is a constraint on standard monetary policy actions, requiring a broader monetary policy framework if we are to provide more policy accommodation.

Additional Challenge #1: Reinhart and Rogoff’s Great Contraction and Debt Overhang


The Financial Crisis of 2008 left an enormous obstacle in the path of the U.S. recovery. From peak to trough, $13 trillion of wealth was erased from household balance sheets. Although the value of households’ assets declined dramatically, their debt levels remained roughly the same. Many borrowers took on additional debt during the period of high and rising asset valuations, and high employment and income growth were key fundamentals for servicing these debt payments into the future. These debt burdens are key contributors to the headwinds I discussed earlier when I talked about the economic outlook. As I noted then, they appear to be substantially more onerous than we had expected.


In their book This Time is Different, Carmen Reinhart and Ken Rogoff documented the substantially more detrimental effects that financial crises typically impose on economic recoveries.7 Recoveries following severe financial crises take many years longer than usual, and the risk of a second recession before the ultimate economic recovery returns to the previous business cycle peak is substantially higher. In a related study of the current U.S. experience, Reinhart and Rogoff show that the current anemic recovery is following the typical post-financial crisis path quite closely, given the size of the financial contraction.8 It would be nice to point to some features of the recovery that suggest greater progress relative to the Reinhart-Rogoff benchmark. But those are hard to come by.


It bears keeping in mind that the Reinhart-Rogoff predictions of a slow recovery are based on historical averages of macroeconomic performances across many different countries at many different times. They highlight a challenge we face today, but from the standpoint of the underlying economic analysis, there is nothing pre-ordained about these outcomes. They are not theoretical predictions—rather, they are reduced form correlations. The economy can perform better than it did in these past episodes if policy responds better than it did in those situations. In my opinion, maintaining the Fed’s focus on both of our dual-mandate responsibilities is a necessary and critical element of an appropriate response to the financial crisis that can produce better economic outcomes.

Additional Challenge #2: Trying New and Nontraditional Policy Responses when the Economic Stakes are Enormous


The second critical challenge is to take actions that respect both the feasibility of what monetary policy can accomplish and the enormous risks to the future prospects of the U.S. economy.


For me, these risks are clear. It is painfully obvious that the large quantities of unused resources in the U.S. are an enormous waste. And it’s not just the current loss—over substantial periods of time, the skills of long-term unemployed workers decline, their re-employment prospects for similar jobs fade, and these reductions in skills have a lasting effect on the future growth potential of the economy.


As I noted in the introduction, some argue that there currently are severe limits to what further accommodative monetary policies can do to address these risks. It is essential to delineate clear alternative scenarios in which this additional accommodation would be futile. Such scenarios clearly exist, but they are very dark and pessimistic interpretations of our current situation. I am personally much more optimistic and I don’t subscribe to this pessimistic view; but let me describe it as I understand it.


Essentially, the hypothesis that limits aggressive policy actions assumes that the productive capabilities of the U.S. have declined markedly in recent years and that many workers who were productively employed just a few years ago are now essentially obsolete. In this scenario, either much of the past decade of prosperity was an illusion or, alternatively within the space of only a few years, the productive potential of the U.S. collapsed for some unexplained reason.


I suppose it is natural to believe that some elements of the story are true. But for me, the evidence for this is minimal, and the implications for productive capacity are exceedingly pessimistic. And even if it is true, the market mechanism should cause wages and prices to adjust in order to reemploy unused resources. For example, there should be some lower real wage that would make it profitable for firms to fund the necessary on-the-job training for workers who need some modest acquisition of skills. According to this pessimistic hypothesis, something is preventing the market’s pricing mechanism from achieving such results within a satisfactory time frame.


My own view is more optimistic and, I believe, more consistent with the idea that our best days are ahead. Without a compelling explanation for the hypothesis that the productive capability of the U.S. has been diminished, I think the evidence favors the belief that aggregate demand is simply much too low today. After all, today there are roughly 14 million unemployed Americans. Only a few years ago, there were only about half that many. It is hard to believe that an additional 7 million Americans have suddenly lost the necessary skills to work in today’s economy, and I have not seen any evidence supporting such a dramatic and rapid loss of skills.


In the more optimistic case to which I subscribe, the productive capacity and potential wealth of the U.S. have not been permanently damaged and currently unused resources are still productive. Accordingly, in my opinion, monetary policy should be used more aggressively to increase aggregate demand. In time, a reduction in excessive risk aversion, supported by natural market forces would reestablish the fundamentals that previously supported stronger growth and full employment. In this way, large social losses would be mitigated. By stimulating aggregate demand, we can have "Morning in America, again" and our best days can still be ahead of us.


But the clock is ticking—the longer we wait, the more likely it is that unutilized skills diminish to the point that more permanent damage takes hold.

Challenge #3: Monetary Policy Held Back by Zero Lower Bound


By now, the third obstacle is quite well-known: the federal funds rate in the U.S. is currently constrained by the zero lower bound on interest rates. Given the economic scenario and inflation outlook I have discussed, were it possible, I would favor cutting the federal funds rate by several percentage points. But since the federal funds rate is already near zero now, that’s not an option.


To date, the Fed’s policy-making committee, the FOMC, has used a number of nontraditional policy tools to impart greater financial accommodation. I have fully supported these policies. Today, however, I simply think we need to do more.


In a recent Financial Times comment, Michael Woodford of Columbia University discussed how greater clarity in policy communications would help.9 As I see it, current financial conditions are more restrictive than I favor, because households, businesses, and markets place too much weight on the possibility that Fed policy will turn restrictive in the near to medium term.


The FOMC’s announcement in August that it anticipates short-term rates remaining low through mid-2013 was certainly a step in the right direction, because it significantly raised the hurdle for early policy tightening. However, I think our dual mandate responsibilities and the strong impediments of the financial crisis argue for a more aggressive approach.


One way to provide more accommodation would be to make a simple conditional statement of policy accommodation relative to our dual mandate responsibilities. The goal would be to enhance economic growth and employment while maintaining disciplined inflation performance. This conditionality could be conveyed by stating that we would hold the federal funds rate at extraordinarily low levels until the unemployment rate falls substantially, say from its current level of 9.1% to 7.5% or even 7%, as long as medium-term inflation stayed below 3%.


With regard to the inflation marker, we have already experienced unduly low inflation of 1%; so against an objective of 2 percent, 3 percent inflation would be an equivalent policy loss to what we have already experienced. On the unemployment marker, a decline to 7.5% would be quite helpful. However, weighed against an overly conservative estimate for the natural rate of unemployment of 6%, it still represents a substantial policy loss—indeed, one that is higher than the policy loss from high inflation of 3%.


Accordingly, these triggers remain quite conservatively tilted in favor of disciplined inflation performance over enhanced growth and employment, and it would not be unreasonable to consider an even lower unemployment threshold that would be enough progress to justify the start of policy tightening.


There are other policies that could give clearer communications of our policy conditionality with respect to observable data. For example, I have previously discussed how state-contingent, price-level targeting would work in this regard.10 Another possibility might be to target the level of nominal GDP, with the goal of bringing it back to the growth trend that existed before the recession. I think these kinds of policies are worth contemplating—they may provide useful monetary policy guidance during extraordinary circumstances such as we find ourselves in today.


The trigger policy I noted above and level-targeting policies may result in inflation running at rates that would make us uncomfortable during normal times. But we should not be afraid of such temporarily higher inflation results today. As I noted earlier, Ken Rogoff (1985) has written that in normal times, we may want conservative central bankers as institutional offsets to what would otherwise be inflationary biases in the monetary policy process. But these are not usual times—we are in the aftermath of a financial crisis with stubborn debt overhangs that are weighing on activity. And as Rogoff himself wrote in a recent piece in the Financial Times, higher inflation could aid the deleveraging process.11 To quote him: "Any inflation above 2 per cent may seem anathema to those who still remember the anti-inflation wars of the 1970s and 1980s, but a once-in-75-year crisis calls for outside-the-box measures."



Last year about this time economic conditions deteriorated to the point that we undertook discussions on how to provide further monetary accommodation—and we ended up with our second round of large scale asset purchases. Now, one year later, we again find ourselves with a weakened economic outlook and again trying to decide what further accommodation to provide. I’m sure everyone will agree that we seriously don’t want to be in this position again at this time next year. I believe that means we need to take strong action now.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 09/07/2011 - 11:29 | 1642216 alien-IQ
alien-IQ's picture

when policy fails...repeat policy.


Wed, 09/07/2011 - 11:38 | 1642226 MillionDollarBonus_
MillionDollarBonus_'s picture

Evans is a true inspiration. He reminds us that this is not the time to be a smart-arse. These are trying times, and only those who trust their leaders are going to survive. Trying to figure out the best course of action on your own is just not going to cut it. Unprecedented crises call for the smartest and most qualified among us, and decision making should be left to experts and no-one else. This is a time to swallow your pride and follow the advice of experienced politicians, top economists and financial professionals. They have proven that they have what it takes to lead this country.

Wed, 09/07/2011 - 11:46 | 1642263 alien-IQ
alien-IQ's picture

"and only those who trust their leaders are going to survive."

and the punchline...

"They have proven that they have what it takes to lead this country."

honestly...not only do I not know what country you're speaking of...I don't even know what planet you're speaking of.

That is without doubt the most supine and subserviently sheepish comment I have ever read.

Wed, 09/07/2011 - 12:26 | 1642449 NotApplicable
NotApplicable's picture

You might want to take that hook out of your mouth. You obviously haven't read many of his posts.

Wed, 09/07/2011 - 13:02 | 1642587 DCFusor
DCFusor's picture

Just imagine wrapping anything this poster says in <sarc></sarc> tags, and you'll be fine.

Wed, 09/07/2011 - 13:23 | 1642667 Hedgetard55
Hedgetard55's picture

You got "hamyed".

Wed, 09/07/2011 - 11:42 | 1642264 tsx500
tsx500's picture

whatever you say !

Wed, 09/07/2011 - 11:45 | 1642278 Comay Mierda
Comay Mierda's picture

brilliant sarcasm

Wed, 09/07/2011 - 11:45 | 1642282 outsidertrader
outsidertrader's picture

Is this sarcastic?


Wed, 09/07/2011 - 11:50 | 1642292 tickhound
tickhound's picture

I dunno, is it?

For example... Pisani (on a roll today), just reminded us that 'expectations for Obama's speech are so low', that if he just shows up and drivels into the mic it will be Dow positive. 

Wed, 09/07/2011 - 11:47 | 1642286 jdelano
jdelano's picture

to junk or not to junk?   this has got to be sarcasm, right?  I give you +1

Wed, 09/07/2011 - 11:50 | 1642287 Everybodys All ...
Everybodys All American's picture

at the risk of being a smart ass ... let me know when you find one.

Wed, 09/07/2011 - 11:51 | 1642289 Divided States ...
Divided States of America's picture

What fuckin douches....Yeah I am referring to MillionDollarMoron and newly assigned Fed mouthpiece Evans.

Wed, 09/07/2011 - 12:03 | 1642353 jez
jez's picture


You're a hoot.

It has all been so thoroughly mismanaged, for years and years and years. You're drowning in debt, and now you have yes-men like Evans saying that the answer is EVEN MORE DEBT -- "very significant amounts" of it.

And instead of being laughed at, and pelted with rotten fruit every time he steps out of his house, which he would be in any sane society, he gets brown-nosing admiration like that above. It's the strangest thing to watch.

Wed, 09/07/2011 - 12:29 | 1642458 NotApplicable
NotApplicable's picture

Why it's so strange, some choose to take it to its absolute limits in an almost comedic fashion.

Well, if one considers dry humor to be comedy.

Wed, 09/07/2011 - 12:18 | 1642424 Zola
Zola's picture

What happened to that Fed staffer who said that monetary policy was beyond the understanding of plebs ... any updates Tyler ?

Wed, 09/07/2011 - 11:50 | 1642295 Quintus
Quintus's picture

It works for the Eurozone leaders.

Oh no, wait......

Wed, 09/07/2011 - 11:30 | 1642217 slewie the pi-rat
slewie the pi-rat's picture

wondered when t.d. wld get to QEIII today

Wed, 09/07/2011 - 12:07 | 1642369 WonderDawg
WonderDawg's picture

Patience, Slewie, it was only a matter of time.

Wed, 09/07/2011 - 12:35 | 1642480 slewie the pi-rat
slewie the pi-rat's picture

i don't think tyler necessarily thinks QE is a good idea, only that it is inevitable

maybe he didn't read all that bullshit either!

my personal take is that the chairsatan doesn't want to expand the FED's balance sheet more, right now, but if the SuperCongo can't rip off enuf from The People to finance all the black&white ops of "our" national aggression, i'm confident that the Council on Foreign Relations will tell benzelbub to keep filling the "finance gaps" in the glory of "our" military-industrial fascist kloptocratic homeland with digits and paper 

do ya think he's gonna say "no" to rockefeller et al


Wed, 09/07/2011 - 13:46 | 1642772 WonderDawg
WonderDawg's picture

Agreed on all the above, except for your implication that Bernanke has some input. I'm pretty sure he just says "Aye aye, sir" to his owners.

Wed, 09/07/2011 - 11:30 | 1642220 TradingJoe
TradingJoe's picture

Clowns @ work! We are once again setting up for a big sell off, how big? It depends how "massive" the QE something WON'T BE!

Wed, 09/07/2011 - 11:34 | 1642222 bigdumbnugly
bigdumbnugly's picture

it doesn't take all 12 to be insane unfortunately.

just pretty much like the public at large.  more with their head in the sand than not.

long pom poms

Wed, 09/07/2011 - 11:33 | 1642227 buzzsaw99
buzzsaw99's picture


Wed, 09/07/2011 - 11:33 | 1642229 Belarus
Belarus's picture

Okay, so this is what we have to look forward to. Just empty chambers in dangerous guns being waved around periodically to lift stocks all across the world. Wonderful. 

I'm in. 

Wed, 09/07/2011 - 11:33 | 1642230 tickhound
tickhound's picture

Carrot.. still.. just out of reach.  Almost got.. carrot. 

Wed, 09/07/2011 - 11:39 | 1642251 DaveyJones
DaveyJones's picture

No wonder we can't see well

Wed, 09/07/2011 - 11:34 | 1642231 qussl3
qussl3's picture

When inflation hits the only way they will have left to kill it is to engineer a massive liquidity crunch and kill any number of corporates along the way.


Wed, 09/07/2011 - 12:08 | 1642236 Mercury
Mercury's picture

Good grief, just look at his conclusion...monetary policy is now a Will Ferrell/Monty Python mash-up:

Bring out the Holy Cowbell of Liquidity...

The number of the Cowbell shall be three, numbers one, one point five and two having been not loud enough...

...then beateth thou thy Holy Cowbell of Liquidity -even more than ever- at thy foe and easeth money throughout the land...

Wed, 09/07/2011 - 12:31 | 1642467 NotApplicable
NotApplicable's picture

I LOLed.

Wed, 09/07/2011 - 11:35 | 1642238 duckhook
duckhook's picture

A large QE3 will mark the end of the United States as velocity of money suddenly kicks in and hyperinflation happens..By 2014 there will public trials of Bernacke,Timmy and most of the Wall St big shots.

Wed, 09/07/2011 - 11:42 | 1642266 TradingJoe
TradingJoe's picture

Would be great but I don't think it'll happen! They will find ways to extract themselves from "judicial woes" by means we can't even comprehend right now! I am 46 and I have yet to see a current/former "official" being in jail for somehting he/she did! Would be great though but very unlikely!

Wed, 09/07/2011 - 12:07 | 1642370 SheepDog-One
SheepDog-One's picture

World war always diverts attention from their judicial woes.

Wed, 09/07/2011 - 13:07 | 1642608 MachoMan
MachoMan's picture

Yeah, but you've got the pesky task of winning the war to ensure you get to go back and rewrite the history books.

Wed, 09/07/2011 - 12:09 | 1642380 WonderDawg
WonderDawg's picture

If the velocity of money theory was valid, hyperinflation would have already happened. That money has to be borrowed and spent to mean anything, and the borrowers have all been tapped out, thus no velocity.

Wed, 09/07/2011 - 11:36 | 1642242 mcguire
mcguire's picture

"measured inflation rates are affected by all sorts of short-term influences, such as fluctuations in food and energy prices that are beyond the control of monetary policy".. lol!!

Wed, 09/07/2011 - 11:37 | 1642243 DaveyJones
DaveyJones's picture

added obamanation

Wed, 09/07/2011 - 11:37 | 1642244 j0nx
j0nx's picture

If they are going to print then why the F not give the money back to the people?? At least then something stimulative to the economy would happen instead of it all going to the banks and in turn the top 1% executives's bonuses. This shit is so far beyond ridiculous as to not even be funny. The American people keep putting up with it though so...

Wed, 09/07/2011 - 11:53 | 1642303 Shameful
Shameful's picture

Because then how would the oligarchy buy up the world for nothing?  Do not labor under the delusion that the government, or the central banks have your interest at hearts.  They hate you.  As to the Americans putting up with it, go look at them.  Listen to them in a public place.  They are living in a fantasy land, quite happily plugged into their dream world as the pillage rages on.  "You know what?  Ignorance is bliss"

Wed, 09/07/2011 - 12:19 | 1642426 DaveyJones
DaveyJones's picture

ah shameful, eloquent as usual. Can't remember now, you done with law school? Got those firms beating down your door with jobs and perks?  

Wed, 09/07/2011 - 11:37 | 1642245 YesWeKahn
YesWeKahn's picture

Phu ck, can't this idiot stops writing bull shit and get out to see how people live? Try to drive a SUV from florida to washington and eat regular food like a human being, apply for a average job and ask for a raise...


Wed, 09/07/2011 - 11:37 | 1642247 Racer
Racer's picture

I can't bring myself to read this, it would make me so angry I would probably break my computer!

Wed, 09/07/2011 - 11:42 | 1642260 j0nx
j0nx's picture


Wed, 09/07/2011 - 11:43 | 1642265 karzai_luver
karzai_luver's picture

"Wall Street is OUR Main Street"!


Don't get mad , they are just doing what they were taught to do.


Be all you can be, join the bankster cabal.


my lawnguy laughs at 6 dollaha gas!



Wed, 09/07/2011 - 12:05 | 1642359 SheepDog-One
SheepDog-One's picture

Yep, just had to stop reading not even 1/4 way thru I just cant handle it.

Wed, 09/07/2011 - 11:38 | 1642249 101 years and c...
101 years and counting's picture

because when $4 gas is killing the economy, maybe $6 gas will somehow help? sigh.

Wed, 09/07/2011 - 11:42 | 1642267 j0nx
j0nx's picture

Well they will just tell you that those prices have nothing to do with their policies and everything to do with high demand in Asia. I even see that shit here from numerous members from time to time. The runup in food and fuel has EVERYTHING to do with the FED's policies and jack SHIT to do with Asian demand.

Wed, 09/07/2011 - 12:05 | 1642360 Seasmoke
Seasmoke's picture

do u think they care, if it costs some fool $6 a gallon to get to their lousy, underpaid job as long as they can pay income taxes to the government

Wed, 09/07/2011 - 11:39 | 1642253 Racer
Racer's picture

People will definitely have to eat their old iPads because won't be able to afford to eat at all!

Wed, 09/07/2011 - 12:02 | 1642346 myne
myne's picture

Lithium gets you high. In a catastrophic emergency, you're taking giant panicked bites. Suddenly you become euphoric, docile. You accept your fate. It's all right here. Emergency water landing - 600 miles an hour.

Blank faces, calm as Hindu cows.

Wed, 09/07/2011 - 12:06 | 1642363 SheepDog-One
SheepDog-One's picture

Giant panicked bites of lithium, lol.

Wed, 09/07/2011 - 11:40 | 1642255 tickhound
tickhound's picture

Let us all not deny the obvious fact...

Dow 11,321 +182 just ain't that convincing

Wed, 09/07/2011 - 11:40 | 1642257 1000yrdstare
1000yrdstare's picture

"when fed doves cry" funny....except now I have that F@#$ing song in my head...

Wed, 09/07/2011 - 11:40 | 1642258 GeneMarchbanks
GeneMarchbanks's picture

I just recovered from laughing at the previous article only to barely get through this one without laughing at all. I am however, now, crying. RIP sanity.

Wed, 09/07/2011 - 11:41 | 1642259 LawsofPhysics
LawsofPhysics's picture

More Fed foreplay.  These guys are such a teese.  ZIRP is all the QE the markets need apparently.

Wed, 09/07/2011 - 11:45 | 1642279 DefiantSurf
DefiantSurf's picture

Zirp and vapor, and the trickle down effect on main street? Reduced demand causing increased unemployment.

This simply cannot end well, but apparently can be prolonged quite a while


Wed, 09/07/2011 - 11:43 | 1642272 sbenard
sbenard's picture

Evans is proof that the Fed's real mission is welfare for Wall St. And everyone else gets to pay the price through inflation, economic malaise, and lost jobs!

Wed, 09/07/2011 - 11:47 | 1642285 karzai_luver
karzai_luver's picture

"Wall Street is OUR MAIN STREET"


Which of your glorious candidates will mouth these truths during the selection season?


Wed, 09/07/2011 - 11:44 | 1642275 Pants McPants
Pants McPants's picture

"I’m sure everyone will agree that we seriously don’t want to be in this position again at this time next year. I believe that means we need to take strong action now."

Pretty clever, Mr. Evans - you're right, we don't want to be in this position next year.  Excuse me for stating the obvious, but following Evans' advice assures us we will not be in the same position.....but in a worse position.  I suppose that'll be the fault of the free marketers/tea party/racists/Bush/yadda yadda.  Or it could be the accommodation wasn't large enough.  Either way I don't expect those in 'leadership' positions to take responsibility for their actions.

It is because 'leadership' won't take responsibility for its actions that I now believe we should do what these guys say.  Install Krugman as Treasury Secretary or Fed Chairman.  Make all the doves write down what they feel will be the right amount of accommodation, price is right style.  When all bids are in, double it.  No, triple it.  After all, if XXX trillion should be enough, truly XXX * 3 trillion will create utopia. 

I've had enough foreplay; I'm ready for the real deal. 

Wed, 09/07/2011 - 11:48 | 1642288 tsx500
tsx500's picture

i luv it.   "conditions aren't much different from recession."     my wife's condition is not much different from pregnancy.   lol.

Wed, 09/07/2011 - 12:13 | 1642398 tickhound
tickhound's picture

+2 tig bitties!

Wed, 09/07/2011 - 13:09 | 1642617 MachoMan
MachoMan's picture

+1 big gut

Wed, 09/07/2011 - 11:48 | 1642290 Racer
Racer's picture

These idiots just cannot be stopped can they!


Oh QE1 and 2 got us here in this mess... uh um, oh, in that case we need more....

Truly incredible, have these Fed amoeba got a single brain cell between them?

Wed, 09/07/2011 - 11:52 | 1642302 Random_Robert
Random_Robert's picture

"decision making should be left to experts and no-one else. "

-Experts like who? Napolean? Caesar? Mussolini? Maybe anybody with the last name of Bush?

Nice work, sock-puppet, troll.

"This is a time to swallow your pride and follow the advice of experienced politicians, top economists and financial professionals. They have proven that they have what it takes to lead this country."

... right into the toilet. 

There, I finished your incomplete thought for ya.

Wed, 09/07/2011 - 11:54 | 1642315 karzai_luver
karzai_luver's picture

he is a sarc-kozy........





Wed, 09/07/2011 - 11:54 | 1642307 Falcon15
Falcon15's picture



Wed, 09/07/2011 - 11:54 | 1642313 reader2010
reader2010's picture

Marc Faber says shit has to hit the fan eventually.

"There’s no question that today, 10 years after 9/11, the entire financial structure of the U.S. is much worse than it was in 2000 and 2001. Household credit mortgage debt, government debt, unfunded liabilities, less people employed and the population is up. The U.S. is much worse off than before 9/11.

For that we have to thank expansionary monetary policies. The Fed cut interest rates in January 2001, but because of 9/11, they cut it further to 1% and left it at 1% until June 2004. The recovery in the U.S. began in November 2001. Interest rates were far too low, far too long. And even after June 2004, credit growth increased. 9/11 gave them ammunition to keep an expansionary monetary policy that led to excessive leverage, and excessive credit growth that led to the housing bubble of 2007/2008.

What has also changed after 9/11 is that geopolitical considerations, while not the most important issue today in the minds of most investors, at least have become more important. The engagement of America, particularly less so in Iraq but moreso in Afghanistan and Pakistan, has led to enormous instability in that region. Plus the fact that the cost to the U.S. economy of the Iraq invasion and the Afghani expedition must run between $1 and $2 trillion.

The second consequence of the war is the U.S. dollar is weak. Nobody can tell me the weak dollar is desirable. It’s a decline of the living standards of Americans relative to other countries in the world. The U.S., instead of spending on the war, could have used that money to rebuild crumbling infrastructure.

Without the war effort, I suppose that there might have been less expansionary monetary policies and slower increases in commodity prices. In the second half of 2007 and first half of 2008, the global economy was slowing and in recession, but because of expansionary monetary policies commodity prices went ballistic and oil rose. It wasn’t because of demand going up; it was because of artificially low interest rates. 9/11 expanded the willingness of policymakers in the U.S. to print money. - in CBS Marketwatch

Wed, 09/07/2011 - 11:55 | 1642314 Dr. Engali
Dr. Engali's picture

Good Lord it's like a never ending nightmare. I keep witing for the fucker to blow up and they pull another rabbit out of their hat. The sheeple still continue to sleep and refuse to wake up. Slip me back into the matrix. I'm sick of wanting to see the truth prevail, only to be discouraged by the never ending cycle of bullshit. 

Wed, 09/07/2011 - 11:58 | 1642329 karzai_luver
karzai_luver's picture

the sheep are wide wide awake.


they are not of sound mind anymore.


any thought of the outside is not possible now.


it's cruel to insist on action from sheep such as these.


leave them be.




Wed, 09/07/2011 - 11:57 | 1642331 Battleaxe
Battleaxe's picture

So if "Operation Twist" is implemented and the fed turns over maturing shorter duration treasuries and buys longer duration treasuries, the primary dealers get another 5% commision plus the premium, right?

Wed, 09/07/2011 - 12:02 | 1642340 g speed
g speed's picture

What a dumb ass--Math??? gezz--- if the input is wrong the result can't be right no matter how "Harvard " their math is---    go buy a can of coffee or a load of steel you stupid shit--Inflation is not 1%--

What the deal is is print the money and give it to the club- then the club buys stuff (commods)at lower price and then the money gets to everyone else and they can buy the stuff back from the club at a higher price and go in debt to you too. 

What pisses me off is these assholes think we don't know the scam-- fuck the bank

Wed, 09/07/2011 - 12:03 | 1642350 SheepDog-One
SheepDog-One's picture

In some of the things I need to order for my business such as chemical solvents, Ive seen 100% inflation yes thats right!

Wed, 09/07/2011 - 12:01 | 1642343 SheepDog-One
SheepDog-One's picture

So we've got 'Operation Twist', Obamas $1 trillion stimulus/housing/tax/jobs program, and PLUS QE3 after all!


Wed, 09/07/2011 - 12:10 | 1642382 SheepDog-One
SheepDog-One's picture

'The QE3 bomb from a week ago'....WHAT bomb? All I saw was the DOW go UP +300 last Friday!

Wed, 09/07/2011 - 12:10 | 1642385 quasimodo
quasimodo's picture

Seriously, I am thinking about going out and buying a fifth wheel camper and a go fast, Baja or Fountain maybe...I am at the point of saying FUCK IT. This game will go on forever. If i can't make the payments, fuck it, let the bank have the bitch back. I see no downside in this. yes I stack, stash, store, etc ad nausuem. It's days like today and yesterday I think to myself that this ponzi will go on for years. Anyone else feel like this?

Wed, 09/07/2011 - 12:13 | 1642400 InconvenientCou...
InconvenientCounterParty's picture

when doves cry... effin priceless.

yep. this is what it sounds like.

Wed, 09/07/2011 - 12:13 | 1642402 JR
JR's picture

How can you have a “first” bomb in the midst of an all out bombing campaign promoting Quantitative Easing which ever since its nomenclature inception has called for massive printing campaigns, be they 1, 2, 3, or 123?

By the way, speaking of nomenclature, what kind of twisted wordsmith calling falsehoods truths allows those Fedsters who “promote monetary policies that involve the maintenance of low interest rates, believing that inflation and its negative effects will have a minimal impact on society”  be doves while they devour the savers and the wage earners, the pensioners and holders of life insurance policies, and most of all -  the economy?  They call themselves doves but they are all hawks – they are the money changers.

Incidentally, the quotation above is the "official" definition of a financial “dove.”

Wed, 09/07/2011 - 12:17 | 1642419 Kina
Kina's picture

Great, extra fiat. I was running out of fire wood, and gold doesn't burn you know.

Wed, 09/07/2011 - 12:21 | 1642428 HardlyZero
HardlyZero's picture

Uhh...didn't Switzerland (CHF) just decide yesterday to force their entire country to go berserk ?

Getting 12 guys/gals and a stub to agree should be much easier than getting an entire country to go wacko !

Wed, 09/07/2011 - 12:24 | 1642445 PaperBear
PaperBear's picture

If the velocity of currency was happening, hyperinflation would have already happened.

We should be thankful most people do not want to borrow and that most banks do not want to lend.

Wed, 09/07/2011 - 12:27 | 1642452 ElvisDog
ElvisDog's picture

It's interesting that now 3% inflation is the acceptably low value. Seems like it had been 2%. Will that keep ratcheting up until 5-6% annual inflation is deemed to be consistent with the stable prices mandate of the Fed?

Wed, 09/07/2011 - 12:35 | 1642477 hoos bin pharteen
hoos bin pharteen's picture


Wed, 09/07/2011 - 12:34 | 1642479 NotApplicable
NotApplicable's picture

How can you just leave me standing?
Alone in a world that's so cold?
Maybe I'm just too demanding
Maybe I'm just like my father too bold

Wed, 09/07/2011 - 12:35 | 1642481 ciscokid
ciscokid's picture

Americans are lucky,they will soon have spanking new

highways and sparking new bridges.Now! Thats the change we want.

Wed, 09/07/2011 - 12:36 | 1642484 hejss
hejss's picture

2% inflation. What a joke! Tell that to the rice eaters all over the world.

Wed, 09/07/2011 - 12:41 | 1642508 khakuda
khakuda's picture

GENIUS!  Let's pretend MIT is wrong and inflation isn't already almost 4% so we can create even more of the inflation that just tanked the economy!

Now, where's my Nobel prize???

Wed, 09/07/2011 - 13:23 | 1642671 EvlTheCat
EvlTheCat's picture

The Fed's Dual Mandate Responsibilities and Challenges Facing U.S. Monetary Policy

bla, bla, bla, obfuscation

Brief Update on the U.S. Economy

bla, bla, bla, obfuscation

Monetary Policy and the Dual Mandate

bla, bla, bla, obfuscation

What’s a Central Banker to Do? (Warning: Math Ahead)

bla, bla, bla, obfuscation

L = (? – ?*)2 + ? * (y – y*)2

Here ? and y are inflation and the (natural) logarithm of output, and ?* and y* are imaginary numbers. bla, bla, bla, obfuscation

L = (? - ?*)2 + 1 * (u – u*)2

where u and u* are the farcical rates of unemployment. bla, bla, bla, obfuscation

Because bullshit in, equates to bullshit out.

L = bullshit

Additional Challenge #1: Reinhart and Rogoff’s Great Contraction and Debt Overhang

bla, bla, bla, obfuscation

Additional Challenge #2: Trying New and Nontraditional Policy Responses when the Economic Stakes are Enormous

bla, bla, bla, obfustication

Challenge #3: Monetary Policy Held Back by Zero Lower Bound

bla, bla, bla, large truck loads of obfuscation


Bend over taxpayer/savers, catastrophic unemployment and QE to infinity!

Wed, 09/07/2011 - 13:39 | 1642740 Jovil
Jovil's picture
Pyramid of Capital System – Where are we in it?

Wed, 09/07/2011 - 13:44 | 1642759 HoardeBilly
HoardeBilly's picture

I love how the QE Confidance Fairy magically makes the bad go away...

"In the more optimistic case to which I subscribe, the productive capacity and potential wealth of the U.S. have not been permanently damaged and currently unused resources are still productive. Accordingly, in my opinion, monetary policy should be used more aggressively to increase aggregate demand. In time, a reduction in excessive risk aversion, supported by natural market forces would reestablish the fundamentals that previously supported stronger growth and full employment. In this way, large social losses would be mitigated. By stimulating aggregate demand, we can have "Morning in America, again" and our best days can still be ahead of us."


Heck, even us goats can't swallow that without choking!

Wed, 09/07/2011 - 13:47 | 1642775 HoardeBilly
HoardeBilly's picture

Earlier someone asked why they dont just give each American $15000 to stimulate demand.


Because the bankers would never throw money at "currently unused resources"...or 40M without jobs.  They'd rather blow the whole taco stand up before that!

Wed, 09/07/2011 - 14:24 | 1642979 Downtoolong
Downtoolong's picture

further policy accommodation..

Sounds like someone is trying to trump Wall Street at creating fancy phrases for simple things (it’s the most significant thing they produce). It doesn’t sell everywhere though. I bet if I asked the cashier at my local Quickie Mart how much further policy accommodation my coffee cost she would look at me like she wanted to slap me in the face. Imagine what someone without a job would probably do.

Wed, 09/07/2011 - 16:45 | 1643567 Quadlet
Quadlet's picture

policies may result in inflation running at rates that would make us uncomfortable during normal times.

<sarc> Gotta love it! </sarc>

Wed, 09/07/2011 - 17:32 | 1643686 Atlantis Consigliore
Atlantis Consigliore's picture

its all about the dollars, print it or churn it, or scam eat steal it, 


or create gold out of subprime crap; or skim it thru Casinos;


its all about he dollars.


you can fool all the pimple and sheeple all the time, just


pimp it on ABC NBC MSNBC and scream Schtimulus.


See  they got it,    lol.


miss the Mob, at least they kept thier word and never lie.....


if you lie,  your a hole in the desert. Good transparency and 


Wed, 09/07/2011 - 17:47 | 1643714 lolmao500
lolmao500's picture

And let's not forget what QE3 will do to the Taiwanese election. Right now, both parties, the nationalists and the pro-China are equal. If Ben does QE3 and it creates inflation (which it will) the people of Taiwan could vote against the party in power because of the economy, leading the pro-independant to win... something which China opposes. And not just ``opposes`` in simple terms.

Last Taiwanese election, the Chinese army was on high alert, ready to invade if the independants won. (this is according to Taiwanese-US intelligence)

So if Obama isn't bright enough to park a battlegroup in Taiwan during the election, and the pro-independance win, you could say hello to a Taiwan-China war... (which would last about 3-4 days)

And now you do the maths to what will happen on the geopolitical and economic front if that happens.


Freaking Bernanke and his crew are gonna kill us all.

Wed, 09/07/2011 - 18:57 | 1643951 pitz
pitz's picture

The big problem is not the lack of employment, but rather, is the type of employment.

Too few jobs for people who actually create and build things (engineer unemployment is basically an epidemic).

Too many jobs on Wall Street for people who only steal things that too few engineers actually created.

Merely printing up a bunch of money will cause the long end of the bond curve to, over time, collapse.  You can't print your way to value in an economy, that's for sure.

Do NOT follow this link or you will be banned from the site!