Janet Yellen's 78-Month Plan For The National Monetary Policy Of The United States

Authored by Economic Prism's MN Gordon via Acting-Man.com,

Past the Point of No Return

Adventures in depravity are nearly always confronted with the unpleasant reality that stopping the degeneracy is much more difficult than starting it.  This realization, and the unsettling feeling that comes with it, usually surfaces just after passing the point of no return.  That’s when the cucumber has pickled over and the prospect of turning back is no longer an option.

Depravity and bedlam through the ages. The blue barge of perdition in the lower middle ferries the depraved and degenerate to their final destination, a small slice of which can be glimpsed above… [PT]


In late November 2008, Federal Reserve Chairman Ben Bernanke put in place a fait accompli.  But he didn’t recognize it at the time.  For he was blinded by his myopic prejudices.

Bernanke, a self-fancied Great Depression history buff with the highest academic credentials, gazed back 80 years, observed several credit market parallels, and then made a preconceived diagnosis.  After that, he picked up his copy of A Monetary History of the United States by Milton Friedman and Anna Schwartz, turned to the chapter on the Great Depression, and got to work expanding the Fed’s balance sheet.

Now here is something all those “Great Depression experts” always neglect to mention: the Fed’s holdings of government securities expanded my more than 400% between late 1929 and early 1933. Friedman’s often repeated assertion that the Fed “didn’t pump enough” in the early 1930s – which is held up as the gospel truth by nearly everyone – is simply untrue. It is true that the money supply collapsed anyway – but not because the Fed didn’t try to pump it up. Many contingent circumstances mitigated against money supply expansion: too many banks went bankrupt, taking all their uncovered deposit money to money heaven, as there was no FDIC insurance; only 50% of all banks were even members of the Federal Reserve system; no-one wanted to borrow or lend in view of the massive economic contraction and the Hoover administration’s ill-conceived interventionism. We can also tentatively conclude that the economy’s pool of real funding was under great pressure, which was exacerbated as a result of the trade war triggered by the protectionist Smoot-Hawley tariff enacted in June 1930. The collapse in international trade and investment meant that the pool of savings of the rest of the globe was no longer accessible. [PT]


Bernanke’s dirty deed commenced with the purchase of $600 billion in mortgage-backed securities, using digital monetary credits conjured up from thin air.  By March 2009, he’d run up the Fed’s balance sheet from $900 billion to $1.75 trillion.  Then, over the next five years, he ballooned it out to $4.5 trillion.

All the while, Bernanke flattered his ego with platitudes that he was preventing Great Depression II.  Did it ever occur to him he was merely postponing a much-needed financial liquidation and rebalancing?  Did he comprehend that his actions were distorting the economy further and setting it up for an even greater bust?


US broad true money supply TMS-2 and assets held by the Federal Reserve… and the perpetrator seen through the lens of various observers. [PT] – click to enlarge.


Normalization Principles and Plans

Perhaps Bernanke understood exactly what he was doing.  As many readers have insisted over the years, the Fed works for the big banks and big money interests.  Not Main Street. Regardless, the Fed recognizes that the optics of its $4.5 trillion balance sheet have become a bit skewed.  The Great Recession officially ended over eight years ago.  Why is the Fed’s balance sheet still extremely bloated?

On Wednesday, Fed Chair Janet Yellen attempted to clarify what the Fed is going to do about it.  Following the two day Federal Open Market Committee meeting, the Fed issued its customary statement.  Therein, it mentioned that balance sheet normalization would be initiated in October.  The referenced implementation note offered details on how the Fed will go about contracting its balance sheet:

“Effective in October 2017, the Committee directs the [Open Market] Desk to roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceeds $6 billion, and to reinvest in agency mortgage-backed securities the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $4 billion.”


Ms. Yellen mentioned that the run-down of the balance sheet was going to be akin to “watching paint dry” – this is certainly true, considering its current size of around $4.5 trillion and the relatively small initial monthly drawdowns of $10 billion. But reductions by $50 billion per month are quite sizable and the markets are very likely to anticipate the effects at some point. In other words, this exercise in quantitative tightening could get a lot more exciting rather sooner than expected. [PT]

Moreover, if we correctly interpreted the Fed’s June 2017 Addendum to the Policy Normalization Principles and Plans, the Fed plans to increase this initial $10 billion balance sheet contraction every three months by increments of $10 billion until they reach $50 billion per month.  Then they’ll let it ride until they’re back to normal; though, it is unclear what the Fed believes normal is.  What to make of it?

Janet Yellen’s 78-Month Plan for the National Monetary Policy of the United States

By our back of the napkin calculation, starting with October’s initial $10 billion reduction, then incrementally increasing the reduction by $10 billion each quarter until hitting $50 billion per month, and then contracting by $50 billion a month from there, it will take 78-months for the Fed to get its balance sheet back to $900 billion (i.e., where it was before Bernanke’s act of depravity).  Thus, in roughly six and a half years, or in March 2024, monetary policy will be back to normal.

If you recall, the Soviets operated under five-year plans for the development of the national economy of the USSR.  Now, Yellen, an ardent central planner and control freak, has charted the Fed’s 78-month plan for the national monetary policy of the United States.  Have you ever heard of something so ridiculous?

However, while the Soviets were zealous believers in their plans, we suspect the Fed will be as committed to the cause as a fat person to a New Year’s Day diet.  In truth, the Fed will never, ever reduce its balance sheet to $900 billion.  They won’t even get close; they are well past the point of no return.

In the early 1930s the Soviet planners under Stalin had a great idea: why not fulfill the 5 year plan in four years? This showed that nothing was impossible for the “new Soviet man” and two plus two was henceforth five. As Marxists will explain, this is in perfect keeping with the rules of polylogism. Even the laws of mathematics must bend to proletarian logic. [PT]


For starters, financial markets will not allow the Fed to execute its 78-month tightening program according to plan.  At some point, credit markets will have a severe reaction.  This would ripple through stock markets and nearly all assets that are propped up by cheap credit.

What’s more, if this doesn’t panic the Fed from its master 78-month monetary policy plan, the economy will.  No doubt, at some point within the next 78-months the U.S. economy will shrink.  What will the Fed do then? Will they continue to tighten in the face of a contracting economy?

Guess who’s lying in wait… it will be found out that a creature long held to be extinct was merely hibernating in its cave, sharpening its claws. [PT]


No way.  They will ease, and then they will ease some more.  They won’t stop until it is near impossible for an honest person to work hard, save their money, and pay their way in life. Many fine fellows were already pickled over by the Fed in the last easing cycle and lost their way. More are bound to follow.


JRobby ergatz Sat, 09/23/2017 - 16:07 Permalink

Friedman was U Chicago (Trotskyist School) No?Awarded the " Stockholm Prize" to validate TOTAL DEBT BASED FIAT INSANITY. All part of the central planning. You have to admire their patients.Without an audit, the Fed is free to continue to buy whatever they wish through proxy. And they will.This is the second great depression. Over 20% unemployment.The only difference between the 1930's and now is the FDIC, and various GOVT ASSISTANCE PROGRAMS that have come into existance.

In reply to by ergatz

Herdee Sat, 09/23/2017 - 12:28 Permalink

Free government cheques to everyone, direct stimulas to spend, if that doesn't work then keep it up, pull out all the stops until hyperinflation.

Rebelrebel7 Sat, 09/23/2017 - 12:31 Permalink

 In June, appliances,  faucets, and vehicles in my neighborhood,  including planes, started singing crazy songs that make zero sense.One of the songs that the air conditioners in my neighborhood started singing is Apple's learning how to fly. Obviously, that makes absolutely no sense what so ever.I believe that Apple computers, may possibly have taken over. Elon Musk has also expressed concerns over the singularity and the possibility of technology becoming independent and removed of the control of human beings.Another theory that I have is that it is from the result of cell phone and Wi-Fi  signals, which are microwaves and could theoretically transmit these messages, since radio waves are a type of microwave.There is a cell tower in my neighborhood, and I do not have WiFi, yet, I am able to  join many networks from my property, if I were to request it,  and if my neighbors were to accept my request, which I have never done.The cell tower in my neighborhood  is owned by American Transmission Company.This is extremely hazardous, and is polluting the air with deadly microwave radiation. I have rejected WiFi, yet, I am bombarded by it.If I wind up with a glio-blastoma multi-form brain tumor, it will be their fault, as well as the WiFi providers.The irony is that the idiot tech terrorists, fail to realize that microwave radiation is completely deadly. They are obsessed with CO2 and turn all of us into Pepe le frog, or in my case la frog. ( I also  prefer renewable energy, but at least God granted me the capacity to think critically, logically, and rationally, unlike the tech terrorists, who are perfectly content with CO2 free deadly microwave radiation. )Warning to WiFi  providers AT&T,  Verizon, Sprint, T-Mobile, and Time Warner Cable, and American Transmission Company I will sue the mother fucking daylights out of you if WiFi signals are still on my property on Monday, September 23, 2017!

Last of the Mi… Sat, 09/23/2017 - 12:55 Permalink

Yellen's twat will have turned to dust long ago before any effective rewind is instituted. 78 month plan my ass. She's saying I'm going to do what I have to do then I'm out of here. Good luck. Concentrate on the economy and not the bankng you dolt. Make the economy hot rather than make number that look like the economy is hot. These guys are playing bait and switch all the way to the retirement home and the US's complete economic collapse.

GreatUncle Sat, 09/23/2017 - 13:17 Permalink

Won't make it ... the $4.5T is taken from somewhere?A good place to go and examine what happens on cutting an economy irrespective of right or wrong but it will reveal potential ... is Greece.The real economy will contract by $4.5T to attempt to take it out and if there is too much malinvestment in there (and there is) then the final value will be many magnitudes greater than this.But if you do not cut .... oh the dilemma ... and decide to go on the path of "eternal QE" you end up like Japan.HERE IS HOW IT WILL BE DECIDED ON WHICH PATH AND NO WE SLAVES ARE NOT EVEN MENTIONED.1.) Cut, attempt to preserve the current style of economy and all the power that goes with it.2.) Or ease like in Japan where if the value of FIAT = 0 they have no power left.NUMBER 1. IT IS THEN

Pollygotacracker Sat, 09/23/2017 - 13:21 Permalink

The Fed lied for 8 years about raising rates. Bernanke lied to Congress with regard to the monetization of the debt. Yellen will lie about unwinding and normalization. She will retire and drop it into the next Fed Chairs lap. These people are the worst. Thanks for NOTHING.

Consuelo Sat, 09/23/2017 - 13:31 Permalink

  "Did it ever occur to him he was merely postponing a much-needed financial liquidation and rebalancing?  Did he comprehend that his actions were distorting the economy further and setting it up for an even greater bust?" Yes, he did.   And it was no secret to anyone else in that building, nor the DoD, the Pentagon, and all-other-concerned-government-agencies, etc.To suggest otherwise ('the Fed is clueless', etc.), is scraping the depths of credulity...Of course it 'occurred to him'...   Bernanke wasn't 'blinded' by anything.Does the author realize (given the late stage of financialization since at least the mid 1990's, and perhaps well before), what the ramifications would have been, had the Fed taken a pass and let the market clear...?Missouri?L.A.?New York?Baltimore?Pick any major metropolitan area which is dependent upon .gov $Largesse and let your imagination wander...The Fed had no choice, and by extension, neither did the 'Continuity-of-Government'...This of course, doesn't dismiss or excuse the Fed of anything, nor does it eliminate what is yet to come, it is simply recognizing what they did and the reasons for it at the time.

7thGenMO Consuelo Sat, 09/23/2017 - 14:21 Permalink

Keep in mind though that the doom and gloom narrative of why QE, TARP, etc., "had to be done" was at least somewhat contrived.  Who benefitted from this narrative?  Obviously, the big banks became TBTF and succeeded in placing themselves above US sovereign law (as pointed out in the excellent video "All The Plenary's Men", available on YouTube), and the USA has become a corporatist oligarchy intent on global domination.  Since 1913, economic downturns have been a power grab by the anonymous oligarchy that owns The Fed to consolidate the wealth in the USA into fewer and fewer hands.  For them, driving people into poverty from these planned downturns is simply something to have a good laugh about over a fine glass of sherry.

In reply to by Consuelo

Batman11 Sat, 09/23/2017 - 14:24 Permalink

The FED have provided the evidence against independent Central Banks.Let’s imagine the FED weren’t independent and could avail themselves of advice from those whose thinking was more advanced before 2008.All the financial instability of recent times was helping those outside the mainstream work out what was going on.Steve Keen can you help the FED (he sees 2008 coming in 2005)?https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.pngAnother 1929 situation is brewing up and Steve knows just where to look to see it.Richard Werner has been studying financial crises since 1989 in Japan and has got a lot further than the “black swan” of the mainstream.Richard Werner can you help the FED?What you are seeing is the unproductive lending building up in the economy just like Japan before 1989.Productive lending goes into business and industry and gives a good return in GDP.Unproductive lending goes into real estate and financial speculation and it shows up in the graph above as it doesn’t give a good return in GDP.Alan Greenspan hasn’t seen the problem developing and suddenly slams on the brakeshttp://newsimg.bbc.co.uk/media/images/45089000/gif/_45089770_us_rates_oct08_226gr.gifI can help the FED.What have you forgotten Alan?He’s forgotten the delays in the system.There were delays while the teaser rate mortgages reset; the new mortgage repayments became unpayable; the defaults and other losses accumulated within the system until everything came crashing down in 2008.The FED had tightened much too fast by not appreciating the delays in the system.The independent Central Bank can get shut off in its own little world and not keep up with the latest thinking.A little outside help can go a long way.100 PhD’s in the conventional wisdom is no match for one person with a new idea. 

OverTheHedge Batman11 Sat, 09/23/2017 - 14:29 Permalink

An independent central Bank doesn't make decisions based on political advantage, but therefore makes decisions based on benefiting the banks. Politically controlled central banks tend to overheat the economy to get the incumbent reelected, or crash the economy to get the new guy blamed. I have no idea which is best but at least the politicians are marginally accountable to the people.EEither way, boom and bust is what's for breakfast.If we can't have normalisation, we theoretically have to have inflation. I am still of the opinion that the only mathematical way out of this mess is to inflate away the excess debt. (Default is the sensible option, but that would bankrupt bankers, so......)

In reply to by Batman11

Batman11 OverTheHedge Sat, 09/23/2017 - 15:46 Permalink

All this boom/bust stuff is the work of clowns that have no idea what they are doing.What is the secret of a stable, successful, export driven, low inequality economy?It is simply a matter of directing bank credit carefully into the productive parts of the economy, business and industry. Bank credit is special as this is where the money supply is created, any other types of debt are not important.The success of the Asian Tigers was due to a policy known as “window guidance” by the Central Bank; this directs bank credit into the important areas of the economy that will ensure it thrives, business and industry. It ensures the bankers don’t go into the normal bubble mode by guiding them away from real estate speculation, financial speculation and focusing on just one area of business without looking at the bigger picture.Germany doesn’t use “window guidance” but it ensures bank credit caters for the long term needs of business and industry by having 70% of its banks being small, non-profit organisations that are closely tied to the regions they serve. There is no incentive to blow bubbles for short term profits, dividends and bonuses.Neo-liberalism was the opposite and let bankers blow bubbles and engage in unproductive lending until max debt was reached.Enlightenment in 15 minutes.https://www.youtube.com/watch?v=EC0G7pY4wRE&t=3sFinancial stability is a lot easier than it looks; Central Bankers just make it look hard.

In reply to by OverTheHedge

hanekhw Sat, 09/23/2017 - 15:27 Permalink

I blame the French for developing balloons in the Eighteenth Century. The English never got the hang of it and the Germans thought nothing could ever replace them until the late Twentieth Century when the Americans perfected....balloons. Of course, the American balloons were VERY successful. Janet Yellen.....balloonist extraordiaire.