As Fed Creates Russell 2000-Based "Wealth Effect", It Tells Banks To Prepare For 11% Unemployment Stress Test

One would think that the S&P doubling from the March 2009 lows would be indicative of a mission accomplished for the Fed's market manipulation, aka Open Market Operations, team. No such luck. In fact, while the abominable Dr Chairsatan and Messrs Frost Sack are spouting garbage about economic recovery to anyone retarded enough to listen (oddly they have found a great audience in Congress) behind the scenes they are telling banks to prepare for a stress test recession scenario in which unemployment is 11%. And since current unemployment is about 23%, and we continue to be in a Depression, we assume this means that the Fed is actively preparing to make sure banks will be able to handle the explosion in economic growth and, oh yeah, hyperinflation, when the $1.7 trillion in excess reserves as of June 2011, finally flood the market. Although since this statement may be sufficient to get Zero Hedge to issue "unsolicited" opinions on the state of the Great Ponzi, we will go with the party line here... Which we find confusing: why would the Fed force US banks to undergo another stress test: aren't they all massively overcapitalized? Wasn't that the whole point of the first fraud of a stress test back in 2009 which had he same credibility as the upcoming European one? And why not cut to the chase and conduct a Ponzi unwind stress test? So many questions...So many more lies.

From Bloomberg:

The Federal Reserve ordered the 19 largest U.S. banks to test their capital levels against a scenario of renewed recession with unemployment rising above 11 percent, said two people with knowledge of the review.

The banks stress-tested the performance of their loans, securities, earnings, and capital against at least three possible economic outcomes as part of a broader capital-planning exercise. The banks, including some seeking to increase dividends cut during the financial crisis, submitted their plans last month. The Fed will finish its review in March.

“They’re essentially saying, ‘Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,’ ” said Jonathan Hatcher, a credit strategist specializing in banks at New York-based Jefferies Group Inc. Regulators don’t want to see banks “come crawling back for help later,” he said.

Crawling back to whom? The next crash won't have the Fed as a backstop - the Fed will be done, as will all central banks. So unless Jefferies envisions Marsians with bags full of cotton plated tungsten Ber-nanks landing some time in 2012 and being dumb enough to bail out the criminal banking syndicate, we fail to see what the dilemma is here.

The Fed’s adverse economic scenario included a 1.5 percent decline in gross domestic product from the fourth quarter of last year through the end of 2011, said the people, who declined to be named because the Fed hasn’t made the details of the review public. The scenario assumed growth resumes, with output rising 4 percent over the fourth-quarter 2010 level by the end of 2013. Unemployment would peak at more than 11 percent by the first quarter of 2012 and drop back to 9.5 percent by the end of 2013.

Instead of engaging in stupid tests which will be gamed by everyone involved, perhaps the Fed should announce to the broader public that it will conduct Ponzi unwind tests: it would be far more interesting to discover what happens to stock markets and the hollow, yet massively "inventoried" US economy, when the Fed finally admits that America has become one big Bernie Madoff Securities Holding Company. We are confident that alone will be sufficient for stocks to perform another massive flash smash. And worst case scenario (should one be able to track down the appropriate people at DTCC): one can always eat their stock certificates. Granted, these being mostly cellulose, their nutritional value is exactly zero, but who cares about fundamentals any more.