Thursday, December 19, 2013

The Fatal Conceit of The Fed Worshipers

By, Chris Rossini

As everyone should know by now, the Fed "taper" has finally arrived. Yesterday, chief central planner Ben Bernanke announced that the Fed will slow down its bond buying from $85 billion to $75 billion per month.

In other words, the Fed is going to continue its job of printing funny money, and assisting in the misallocation of the economy's scarce resources. It's just going to (ever so slightly) slow down the pace in buying bonds. But the damage to the economy, and to our purchasing power, shall continue.

In our Libertarian/Austrian Economics neck of the woods, not much has changed. The Austrian Business Cycle Theory is still intact. Supply and Demand have not been abolished, and last but not least: It's still not different this time.

Yet, if you were to make your way through commentaries from the opposition, you'd think that Ben Bernanke has brought peace and harmony to the world with his ink machine. The Fed worshippers woke up, noticed that the Earth was still spinning and the Sun was still shining, and came to the conclusion that they always come to: Bernanke is The Hero!

Joe Weisenthal says "Ben Bernanke Just Mowed Down A Whole Bunch Of Haters" and "the economy is getting better, interest rates AREN'T exploding to the upside, and the stock market is more than handling this well (stocks are up nicely). Basically Bernanke just executed what a bunch of people said was totally impossible."

Barry Rithotlz says that Ron Paul "End The Fed"-types have something called "Central Bank Derangement Syndrome" because, rather than crash, the markets "took off".

Ambrose Evans-Pritchard says that "Quantitative easing has worked marvelously well. Monetary policy has been vindicated."

Matthew O'Brien says that "The Fed Tapered Perfectly".

All this hubris...and for what? The Fed has gone from counterfeiting $1 Trillion per year to $900 Billion. And after announcing this "perfectly" designed taper, the markets didn't collapse on the day of the announcement, or the day after.

Are these people serious?

Unfortunately, the answer to the question is "Yes". On the positive side of the ledger, we are serious too, and Austrian ideas are spreading very quickly.

At some point, the Fed will be forced to put an end to this non-recovery that is built entirely on a foundation of sand. This "taper" is virtually a non-event. The Fed is still very much in damage creation mode. Someday, the damages will have to be revealed for everyone to see. When that time comes, the Internet will have copies of both sides of the argument, in digital print, and dated.

I wouldn't want to be in the shoes of the Fed Worshipers.

Chris Rossini is on Twitter and Google+


  1. Whatever
    How's that look for Bernanke's dishonest report on the condition of the U.S. economy?

    But don't take it from me, if you think Bernanke means well - he doesn't - here's an excerpt from the widely read King Report:

    In his press conference Bernanke reiterated the FOMC Communique’s false narrative that persistently low inflation could harm the economy. We cannot believe that Fed academics still believe in the economic alchemy that holds that economic growth is related to inflation. Fed academics, like Soviet apparatchiks, have purged the economic history of the Seventies, Eighties and late Nineties in order to maintain the promiscuous credit policies that keep big banks and big government functioning.

    The market action after the FOMC statement was equally as absurd. Here's another comment from The King Report:

    Please note that the initial response to Fed tapering drove the S&P 500 below and important technical level (or two) and someone immediately appeared to rescue stocks by driving SPHs higher. We have warned incessantly that this scheme has occurred repeatedly since the financial crisis of 2008.

    The Fed and the Government have unleashed an unprecedented amount of manipulative control over the markets - all of them, not just the precious metals market.

    1. Gold is 1,188.92 now because the Fed is manipulating the price? How can gold be a "safe haven" if the price is so easily manipulated?

      Wall Street has never been a fan of the Fed's dual mandate. You think they're just pretending to hate inflation? Banking essentially means borrowing short and lending long. Inflation is their enemy. The old libertarian argument was that 70s inflation caused the large number of bank failures in the late 80s. Sensible people pinned the blame on deregulation.

    2. As it relates to the direction of the price of gold, yes, I did get that direction right. The interesting thing here is the statement itself does not really justify the movement in the price of the metal because, actually, this was a dovish statement. Let’s take it apart: You are removing a pretty meaningless $10 billion in additional stimulus, which really wasn’t stimulating anything other than the capital markets -- equity and to a lesser extent fixed income.

      It wasn’t leaving what is a closed-loop of Wall Street and the banks. So at the end of the day, Wall Street wins by buying targeted securities in advance, that are well advertised, and then selling them to the Fed at a profit or a markup. They then reinvest those proceeds in a narrow range of securities, including equities. Then they rinse-and-repeat, with the excess liquidity being stored as excess reserves.

      So at the end of the day, it’s just one big closed-loop that serves Wall Street and helps indirectly drive property values in Greenwich, Connecticut higher. But it doesn’t do anything for Main Street. This is why there has been so little movement in the Labor Force Participation Rate, and other metrics that are actually important to the real economy since the lows in 2008. So this whole scheme has been a huge failure. And shaving $10 billion off of the $85 billion each month is not going to do anything. To be honest, I think everyone knows this.

    3. "Sensible people pinned the blame on deregulation."

      So does that mean you hate Jimmy Carter? LOL

    4. For Jerry:

      It’s also clear that the Chinese fully understand the mechanics of the gold market and the determinants of
      the price.
      For example, the following is a translation of an article from Zhang Jie of the China Gold Association (basically
      an arm of the State Council), “Gold Leasing Is A Tool For The Global Credit Game”, published on 15 April 2013.
      This will probably shock many investors in the West. With thanks to Koos Jansen for the translation.
      “Gold leasing is an important innovation in the gold settlement system. Through continuous gold
      leasing the gold in the market can be circulated and produce derivatives, creating more and more
      paper gold. This is very significant for the United States. Gold leasing is a major tool for the
      Federal Reserve and other central banks in the West to secretly control and regulate the gold
      market, creating gold credit derivatives…The purpose of gold leasing is not just to receive a rent,
      but it also provides the ability to short-sell gold, which allows central banks to interfere in the
      currency market…If one wants to control gold, it is a necessity to have the ability to short-sell the
      same. A central bank that directly suppresses gold would be suspected as a market manipulator.
      However, gold leasing by the central bank can take place unnoticed…For the Fed, it is crucial
      that the dollar dominates the world and so the Fed will store gold reserves from countries all
      over the world to control the gold settlement system. If there were another gold settlement
      system, it would compete with the dollar’s trust. Natural gold credit would be a nightmare for
      the continuous printed dollar. The dollar can only be the world currency as a result of the United
      States controlling global gold settlement. However, if other countries want their gold back from
      the Fed, the Fed will lose its gold settlement position.”

    5. For the love of GOD!

      Please quit feeding the troll. It never responds, it just sows discord. It has no arguments, just ad hominem attacks or easily destroyed arguments. It won't debate.

      It needs to be banned.

      Unless it will agree to an interview by Bob Wenzel where it can be destroyed on the Wenzel Show, I wish he would just ban it, and refuse to publish its comments.

    6. Wolfgang- when you're proven wrong, are you going to apologize and beg forgiveness?

  2. Rigging Foreign Exchange Markets. Finance Capital’s “Control Fraud”

    Market rigging is longstanding practice. It’s part of the system. On March 18, 1989, Ronald Reagan’s Executive Order 12631 created the Working Group on Financial Markets (WGFM).

    It’s commonly called the Plunge Protection Team (PPT). Officials involved (or their designees) include:

    the President;

    the Treasury Secretary as chairman;

    the Fed chairman;

    the SEC chairman; and

    the Commodity Futures Trading Commission chairman.

    PPT’s “Purposes and Functions: Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets.”

    ”(T)he Working Group shall identify and consider:

    (1) the major issues raised by the numerous studies on the events (pertaining to the) October 19, 1987 (market crash and consider) recommendations that have the potential to achieve the goals noted above; and

    (2)….governmental (and other) actions under existing laws and regulations….that are appropriate to carry out these recommendations.”

    Government and Wall Street collude. They manipulate markets doing so. They move them up and down. Enormous profits are made both ways. Most people don’t know what goes on.

  3. HSBC Receives Slap on the Wrist for Helping to Finance Terrorists

    Posted on December 19, 2013

    The “Too Big Too Jail” nonsense that surrounds large U.S. banks and their above the law employees has been glaringly obvious and thoroughly documented for quite some time now. Yet what represents an even larger slap in the face to millions of hard-working, law-abiding citizens, is how relentlessly the “justice” system goes after small time criminals, while merely fining oligarch thieves for far worse crimes. I first covered this theme earlier this year in my piece Some Money Launderers are “More Equal” than Others, which discussed how HSBC was caught laundering billions of dollars for Mexican drug cartels.

  4. Sand is a great thing to build on. Think about it. Maybe quick sand would be a better thing to use to make a point of what the FED is doing to all of us?