Will Bernanke Bail Out An Incompetent Congress Once More

Tyler Durden's picture

The vital question of the moment is whether of not The Bernank will signal an intention of moving towards QE3 in his much-anticipated 'Jackson Hole' conference in two weeks. Citi's Tom Fitzpatrick believes "it would be irresponsible to do so and that we need a more 'responsible fiscal policy' which will not materialize as long as we have an 'irresponsible monetary policy' bailing policymakers out". However, what we think in this regard is totally irrelevant to this discussion for it is what we think the Fed thinks that is critical. Recent data seems to have been a little more supportive of the economy (on the face of it) and may lead the Fed to stay on hold in the near term (September meeting). This will almost certainly raise the bar extremely high for further easing as we head into the Presidential race proper. If this window closes then a move before December will be extremely unlikely barring a major financial/market/economic shock, since after the 9/13 meeting, there are no more meetings until 12/12. However this increases the danger of the Fed getting 'caught behind the curve' which must be balanced with the 'mistake' of one-monetary-step-too-far with very real inflationary consequences.

10 year yields today compared to the summer of 1993


and Gold resembles 2006 - after Gold corrected down from $730 to $542 - when the market consolidated but utlimatley rallied to new trend highs...


and Brent is breaking to new highs...


Tom Fitzpatrick, Citigroup: To QE Or Not QE:

from a Fed perspective

Recent data seems to have been a little more supportive of the economy (on the face of it) and may lead the Fed to stay on hold in the near term (September meeting). This will almost certainly raise the bar to moving extremely high as we head into the Presidential race proper. If this window closes then a move before December will be extremely unlikely barring a major financial/market/economic shock. There is no Fed meeting in November so after the 13 Sept meeting the window likely closes until Dec 12 without an “event risk” scenario materializing.

However this increases the danger of the Fed getting “caught behind the curve” in their objectives as:

  • Small business indicators (the backbone of the U.S. economy) are deteriorating again (Bad sign for employment)
  • Overall employment is not following a traditional recovery path and we are seeing
    • Poor household survey
    • Continued dropping participation rate
    • Flattening out for initial claims
    • 3 consecutive monthly rises in the underemployment rate
  • A housing market recovery that still dramatically lags other recoveries at this point in the cycle is keeping the consumer (70% of the economy) suppressed
  • Consumer confidence appears to be rolling over again. Historically this has had negative leading indications for the Equity markets in the months following.
  • Consumer credit is starting to soften again
  • Core inflation indicators (their mandate) are softening
  • Food and energy rising on supply concerns are creating a negative “fiscal drag” feedback loop
  • US yields starting to rise as people now start to believe that we will not get a move from the Fed in the near term adding a potential monetary drag to the “fiscal drag” (Double whammy as we get de facto fiscal and monetary tightening)
  • A Middle East “tinderbox” that is very susceptible to a food price shock and a likely cause of an Oil price shock (as we saw in 1973-1974 and again in 1978-1979)
  • ISM back below 50 again where Fed “normally” eases
  • Negative short-term yields in core Europe and elevated peripheral yields still in place suggesting that strains are still just below the surface. Despite this the ECB made no accommodative moves at the last meeting but just “kicked the can” again. More Eurozone stresses are therefore likely “around the corner.” In addition the weaker EUR will exacerbate the Food and Energy price rises in Europe.
  • Slowing China economic data and rising food inflation is a bad mix.
  • A Presidential election that has now become a clearly defined “policy battle” with one side of the fence clearly not supportive of the present Fed approach if elected therefore becomes one of the only catalysts for an early move but would likely be perceived as way too political.

They are some of the reasons for moving. The reason for not moving is that it could be a mistake, one step too far. What is the consequence of being wrong to move - the likelihood of inflation in a debt laden economy.

While as in the 1970’s this would be painful and likely create a “stagflationary” economic dynamic it is an acceptable outcome in a “debt laden economy” (the lesser of two evils argument)

From a Fed perspective this decision process looks to becoming less linear and more in favour of renewed balance sheet expansion.

Do we believe this is the right way to go? Probably not.

Do we think it will ultimately be inflationary? Yes.

However what we think does not matter.

What we think the Fed thinks is what matters and we are starting to think that a move is becoming more , not less likely, just as the market and possibly even the Fed seems to be thinking otherwise. A move in September now certainly looks less likely but ironically the lack of a move may see the Fed once again “behind their curve” and scrambling to catch up again in late 2012/early 2013.


Succinctly summarized thus:

1. What we have to pay for is rising in price (oil and food)
2. What we choose to pay for is falling in price reflecting stresses on the consumer and businesses alike.


This is not a positive dynamic in a very uncertain environment.


The most concerning chart is Oil which we fear will break higher and ultimately create a negative feedback loop that could at some stage become a negative backdrop for equities.


Europe will suffer most given their economic fragility and currency weakness.

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Michael's picture

Yes. I've already guaranteed it and am about to make a lot of money on it.

TheSilverJournal's picture

The continued flow out of Treasuries and the flow of funds into equities today, showed that the market's move was on the belief that the Bernank will announce another LSAP in 15 days. Whether or not the market pans out to be correct, only time (or an insider) will tell. If the Bernank fails to pull the trigger and the market is in fact being fooled, equities will not be happy and we may see our last epic sucker rally into bonds. And if? he does pull the trigger at oil $96 and gold $1600+, uhoh...

max2205's picture

Ben will ease' in Aug. he doesnt want to 'slip' in the hot tub.... Then he gets a win win in case Obummer gets re elected or romryan does.

economics9698's picture

Don’t you just love it when the fascist, socialist, and communist fight it out over a dead corpse?

Hang the central bankers and politicians. 

Fuck it.

notbot's picture

"Will Bernanke Bail Out An Incompetent Congress Once More?"

He'll wake up with a horse head in his bed if he doesn't.


goodrich4bk's picture

Who benefits from QE3?  Stock owners, Obama.  Who loses?  Bond owners, Republicans and the 1% who will see a large tax increase under Obama vs. Romney.

So, who is more powerful, who has greater control?  Stock investors and Obama, or the 1% and Republicans?

Bernanke is going to do NOTHING.  Stocks will immediately sell off, bonds will skyrocket higher and Romney will ride the "September Surprise" into the Whitehouse.  In January, Bernanke will finally relent, but only after President Romney and a Republican Congress agree to significant spending cuts.

French Frog's picture

"If this window closes then a move before December will be extremely unlikely barring a major financial/market/economic shock, since after the 9/13 meeting, there are no more meetings until 12/12."

Does no one in here even check the basic facts that make an article any more?

There is a 2 days Fed meeting between September & December on 23rd/24th October (albeit without a Summary of Economic Projections and a press conference by the Chairman, but still)!


barliman's picture


Why QE when jawboning is cheaper and more effective?

The Citi analysis is merely another smoke screen laid out for mass consumption. QE2 ended over a year ago. Operation Twist is running out of steam.  The markets have self-levitated based on the parsing of FOMC announcements down to the nth degree

NOTHING has changed in Europe ... except the ChairSatan's counterpart learning that saying you will do something is even better than actually doing something.

IF the Central Banks DO SOMETHING ... then Central Bankers would have to answer for their sins when inflation goes ZOOM - because there is NO WAY IN HELL the Central Banks can EVER raise interest rates to "bring inflation under control."

Behind the curve is the best place in the world for ALL of the Central Bankers at this point.  Does ANYONE believe Bernanke gives a shit about runaway inflation? Seriously?!?

It's sad to see even ZeroHedge fall into the behavioral psychology trap Bernanke is using -  Will He?  Won't He?

HE is laughing his ass off behind his smug little beard.

Markets are near the highs for the year on nothing but vapor. Exactly WHO among the market makers is going to DROP the markets as those self same market makers are coming up on thier bonus allotment time?

Anyone?   ... Anyone?

Bernanke will hold his fire until a European or global crisis forces his hand.

There will be only ONE more QE and it will be QEEND - which will be over $ 5 trillion USD in size and will, amaong other purposes, be used to CRUSH the bond vigilantes that try to jack up the curve.


TheSilverJournal's picture

"Why QE when jawboning is cheaper and more effective?"

Because if the rate of suckers (newly created currency) being brought into the ponzi scheme stops increasing, the ponzi implodes. That's how ponzis work. New suckers must be brought it at an ever increasing rate.  At some point, no matter where the jawboning directs capital, it won't be good enough, and the only solution to keep the ponzi going will be to print.

barliman's picture


I've already addressed this:

"At some point, no matter where the jawboning directs capital, it won't be good enough, and the only solution to keep the ponzi going will be to print."

That point will be WHEN the Titanic is sinking ... whether it comes in the form in the dissolution of the EU/euro, socio-economic based revolts in China (i.e. this does not mean freedom fighters - it can be one faction of the Chinese Communist/Capitalist Party fighting another),  or the use of nuclear weapons to fulfill  political ends.

UNTIL then Good-old, ass-raping Uncle Ben has no reason to step in to play small ball - EVERYTHING he needs for small ball is being obtained by jawboning.

And everyone debating the small ball details are just puppets dancing on the end of his strings.


TheSilverJournal's picture

The Titanic may be sinking right now. Honestly, my best guess is there's one more selloff in equities and one more epic sucker rally in bonds, but who knows, at some point it's just up up and away in bond yields and that point could have been two weeks ago. One thing that truly amazes me is how many idiots accept negative real interest rates when borrowing money to a country that's so far beyond broke it's ridiculous.

barliman's picture


Negative interest is more attractive than potential dissolution (EU/euro), twenty years of malaise (Japan) or making a death wish on a "safe haven" (When the Swiss say "Fuck You!" the do it via their currency).

Game theory says Bernanke is playing from the strongest position EVEN THOUGH his end goal is massive devaluation of the USD.

The "smart money" is just the suckers who haven't had the odds catch up with them yet - and for them, negative interest rates are the best of a bad lot because they believe they will be able to get out in time.


FL_Conservative's picture

Complete fucking waste to be doing more asset purchases in the current environment when the banks have yet to use the funds they have been provided with thus far.  Dick Fisher as much as said the same thing yesterday.  I don't always agree with him, but he's absolutely right in that regard.  Totally fucking retard if Bernanke does anything at this point.

alfred b.'s picture


   Yesss....and it will need to be massive!

  Buy physical gold and silver.



Michael's picture

The goal is to stuff the Fed with so much toxic waste that it chokes itself to death.

ACP's picture

The problem is, when the Fed buys something that is about to go to "zero," they just buy all of "it" so there will be no further price discovery.

barliman's picture


Ever tried drowning a pig in shit?

The Fed is more toxic than the waste.


lolmao500's picture

But but but... congress is helping businesses!


Labor Dept. Attempts to Stop Layoffs by Giving $100 Million to States to Subsidize Payrolls

NotApplicable's picture

As if the states weren't already over-indebted to Uncle Sugar.

NidStyles's picture

Depends on what his master's tell him to do. He already know's that he will not be reappointed, but if the Banks want QE, QE will happen. If they were talking about the real economy, and not Wall Street I think we could be a little more honest about this situation. When the people on the Tele refer to the economy, they are not referring to you and me, they are referring to Wall Street and Banker yield's. 

Dr. Engali's picture

I think the Bernank's job is secure regardless of who is in power. He has served his masters well.

lotsoffun's picture

he has served the masters.  but - disagree.  turbo timmie is already done.  if romney gets in. he gets to fire bennie and when the collapse comes, blame it all on him, dispite what he does, just like big bad bama gets to blame everything on bush policys.


NidStyles's picture

His job may be secure, but his position for the Banks will change. They have to keep the charade going, and moving him out to move another tool in will be done. 

boogerbently's picture

Who'll blink first.

It's a 3 way shootout.

If Ben waits until Dec. it may be too late. ( Months too late and obama might be re-elected)

If EU or China QE, Ben won't need to.

Oil reserve release is JUST a campaign ploy. obama doesn't want a crap economy AND high gas prices.


LMAOLORI's picture



The only way we'd be rid of Ben is if Romney's elected so unless he knows who is going to win ahead of time his printing would help obama and the markets.  


How does QE help out Congress?  I must be missing something. I think it's laughable this helping out Congress baloney anyway since the Fed is supposedly independent.  Does Congress force Ben to print??  The only way he would be helping out Congress is by continuing to buy our debt not by QE someone please correct me if that's wrong.

TrustWho's picture

Here is what I sent the Fed 8/10/12

The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.

-Roman philosopher and statesman Marcus Tullius Cicero (106-43 BC)

Please help control the public debt by IGNORING Chuck Schumer. Are you independent or not? Marcus Cicero wasted his energy warning the politicians, but he remains an honorable historic figure!

spastic_colon's picture

i like the old Cicero as well....but we all know how that eventually turned out....he sorta lost....it is only words unless you have the power behind it (military and/or political)

TrustWho's picture

...oh so true. The historic landscape is covered with the human carcasses from wise men who were too stupid and spoke the truth...like Socrates, the banishment of Galileo Galilei...

I guess the moral of the human story is "Power corrupts; Absolute Power Absolutely"; such that the powerful would rather commit mass suicide of the guity and the innocent than admit their inability to control man's destiny.  

Humans are like the mytthical lemmings' mass sucide!


sixsigma cygnusatratus's picture

Words of wisdom to be sure, but look at what they did to Cicero for those words!

MFLTucson's picture

"This will almost certainly raise the bar extremely high for further easing as we head into the Presidential race proper".

Since when does "proper" matter?

123dobryden's picture

do youthink direct democracy and almost everyday referendums are going to cure this pigfarm?

NidStyles's picture

Sure it'll make tyranny that much easier. I never understood why people think they can fix a system by using the system. That's like saying you can fix a car by running another car into it. 

john39's picture

why don't we just do QE every then, you know, to ward off hard times... just in case.  /s  epic levels of stupidity out there.

spastic_colon's picture

what in the fuk do they think more QE is going to help exactly?!  the s&p is at 1415 and the 10 yr is 1.80%!  how many more votes do they need to buy at this point?

Rainman's picture

Central banks know this is a developed world balance sheet depression....just don't expect them to say the words ever. The only true cure is repudiation, which is horrifying to the banks. Expect many rent-a-recovery schemes for many years should they be able to avoid an outright collapse. 

TrustWho's picture

...buy treasury bills and bonds. Would the public know if the USA treasury decided to terminate pyment on all bills and bonds on the FED balance sheet? 

buzzsaw99's picture

the bernank only cares about the bankers, not the usa. in order to feed the banks more bonuses they must first load up on less expensive t bonds. the arrogance of the fed talking like the congress needs them. if the congress did their job there would be no fed. suck it fed bitchez.

boiltherich's picture

I don't know if it will be Benny B that does the bailing, or if the congress will be the main beneficiary but there are plans afoot to do something radical albeit very temporary about high gas prices which we know pisses off the electorate more than anything else:


Exclusive: White House dusting off plan for potential oil release


WASHINGTON | Thu Aug 16, 2012 4:22pm EDT


WASHINGTON (Reuters) - The White House is "dusting off old plans" for a potential release of oil reserves to dampen rising gasoline prices and prevent high energy costs from undermining the success of Iran sanctions, a source with knowledge of the situation said on Thursday.



Hype Alert's picture

It has nothing to do with Iran sanctions, it's all about getting re-elected.  I've heard many people that claim to be conservative say anything to relieve gasoline prices is a good thing.  Mind boggeling.  Too many people will feel better if they get a 2-3 month dip in prices at the pump, just like a booming stock market.  It's all about the election and if people feel good they will vote for whoever they think did it.

lotsoffun's picture

walk.  ride a bike.  try a skateboard.  it's one thing if you are so stupid as to commute 2 hours driving to work.  but then on the weekend, all you do is drive the car to the mall to buy things to make you dumber and stupid and fatter?

if we would all reduce burning fossil fuels, we wouldn't have to pay so much to the fossil fuel producers.  and then, we wouldn't have to bomb them to keep it cheap.  and then we wouldn't have to send our kids to keep bombing them.  and then we wouldn't have to keep crying when they killed our kids.  and then we wouldn't have to keep crying when they occasionally blew up something on our own terrority.  and then we wouldn't have to whine when we went through endless un-necessray security measure.

and then, we wouldn't have to keep on killing larger numbers of them then us.  even though we are civilized and much more important.


Totentänzerlied's picture

"they will vote for whoever they think did it."

Yep, last night I a famile member elucidating his grand politico-economic worldview. In this worldview, Republicans and only Republicans, who are all rich, greedy, amoral businessmen, pander to big business, and big business is evil for creating the financial crisis and destroying the economy, so Republicans are evil, Democrats fight against big business, they're the good guys, so when a Democrat is president, it's really hard on big business, so the Republicans, via big business, sabotage the economy and blame the government. He then, curiously, admitted that he had no evidence and did not care, that's just how it is. He also explained that people need to stop blaming Obama for high oil prices, it's not the president's fault, it's the evil speculators' and corporations' fault, but that Obama needs to "do something" and we should be grateful if/when he does but if he doesn't that's okay because it's really not his place (yeah). Obama is also faultless because he's a first-term president and therefore deserves a free pass, presidents (but not Bush Jr.) need an entire term in office before they can be reasonably expected to accomplish anything. And, yes, none of it is Obama's fault, he's dealing with problems created by the Bush administration. He finished by stating that a lot of people are politically brainwashed and believe whatever they're told (by the evil Republicans) and therefore blame the wrong people for our problems.

Now the really strange thing about this is that this person, just a few short years ago, was a self-professed Republican, and just a few days ago a self-professed independent who "votes with his heart".

But it gets better. He's a public union employee and has been for his entire adult life, his only previous job was stocking shelves at a department store. Better still, he makes over $125,000 a year. And yet, Obama needs to do more for the working class.

These people are utterly insane and totally beyond hope. When they say gas is expensive, it's Bush's fault or the speculators' fault or the corporations' fault, when they say gas is less expensive, it's Obama's doing. Supply and demand, indeed no economic or geopolitical factors are ever mentioned.

I had the unique pleasure of attempting to explain the relationship between ZIRP, treasury bond yields, and savings account interest to someone who recently became eligible for a credit card after having declared bankruptcy. At the conclusion, this person told me "I guess I don't really understand interest rates" and had heard of LIBOR but had absolutely no idea what it is and why it was in the news.

The electorate is so fucking far beyond totally complacent ignorance, they deserve every single incremental cent in the price of gas and they'll NEVER have some much as a clue as to why the price moves either way. And the truth is, they don't really care so long as they can get on with their discretionary spending, the only thing that matters.

boiltherich's picture

Yeah, literally while I was napping. I just saw the post that was not there when I last looked this morning.

Dr. Engali's picture

They can try it and get a temporary bump, I'm sure China will be grateful for the cheaper oil. But it will be a very short lived bump. I doubt that it will even help gas prices, because that is a refinery issue.

lotsoffun's picture

youngster at work was looking at ally banks wonderful CD interest rates.  had to spend sometime explaining how wonderful it was that ally bank had been GMAC and was 74% owned by treasury which was related to the fact that GM was 30% owned by treasury which was related to ..... financial corporation had been given ..... in bailouts, ignoring the fact the FH and FN are also 78% owned by the treasury which in turn is hoping to sell  it's 30% stake of AIG.

now that i've typed all this, i guess it really is better for everybody (usa that is) if i buy a GM car and finance it through ally and put my cd's at ally and buy insurance from aig and hope to get a loan that will qualfiy with fh fn.


Dr. Engali's picture

Will the Bernank bail out congress ? Does Bill enjoy a cigar and a Lewinsky?

Mr Lennon Hendrix's picture

The question is:  Will the incompetent American let the incompetent Bernanke use the incompetent American's future taxes to bail out the incompetent Congress?