It must be scary to be a Federal Reserve governor. You have to pretend that you know what you’re doing when, in fact, Fed policy appears completely divorced from any sense of consequence, or cause-and-effect, or reality — and if it turns out you’re not so smart, and your policies and interventions undermine true economic resilience, then the scuttling of the most powerful civilization in the history of the world might be your fault — even if you went to Andover and wear tortoise-shell glasses that make you appear to be smart.
The Fed painted itself into a corner the last few years by making Quantitative Easing a permanent feature of the financial landscape. QE backstops everything now. Tragically, additional backdoor backstopping extends beyond the QE official figures (as of December 2013) of $85 billion a month. American money (or credit) is being shoveled into anything and everything, including foreign banks and probably foreign treasuries. It’s just another facet of the prevailing pervasive dishonesty infecting the system that we have no idea, really, how much money is being shoveled and sprinkled around. Anything goes and nothing matters. However, since there is an official consensus that you can’t keep QE money-pumping up forever, the Fed officially made a big show of seeking to begin ending it. So in the Spring of 2013 they announced their intention to “taper” their purchases of US Treasury paper and mortgage paper, possibly in the fall.
Well, it turned out they didn’t or couldn’t taper. As the fall equinox approached, with everyone keenly anticipating the first dose of taper, the equity markets wobbled and the interest rate on the 10-year treasury — the index for mortgage loans and car loans — climbed to 3.00 percent from its May low of 1.63 — well over 100 basis points — and the Fed chickened out. No September taper. Fake out. So, the markets relaxed, the interest rate on the 10-year went back down, and the equity markets resumed their grand ramp into the Christmas climax. However, the Fed’s credibility took a hit, especially after all their confabulating bullshit “forward guidance” in the spring and summer when they couldn’t get their taper story straight. And in the meantime, the Larry-Summers-for-Fed-Chair float unfloated, and Janet Yellen was officially picked to succeed Ben Bernanke, with her reputation as an extreme easy money softie (more QE, more ZIRP), and a bunch of hearings were staged to make the Bernanke-Yellen transition look more reassuring.
And then on December 18, outgoing chair Bernanke announced, with much fanfare, that the taper would happen after all, early in the first quarter of 2014 — after he is safely out of his office in the Eccles building and back in his bomb shelter on the Princeton campus. The Fed meant it this time, the public was given to understand.
To anyone paying attention, it constitutes the largest counterfeiting operation in world history. A private banking cartel with a monopoly power on the creation of "money" and the world's reserve currency? What could possibly go wrong with this arrangement?
2014: Investing in a World of Hyper-aggressive Monetary Policy
The growth of the U.S.'s bigger and broader productive economy has been stunted by bad policies and bank bailouts benefiting rent-seeking financiers siphoning off an outsized percentage of the nation's gross domestic product (GDP).
Rent-seeking companies lobby Congress for subsidies for activities that do not benefit society.
Moreover, beneficiaries of Congressional largesse damaged society by engaging in control fraud, wherein parasites damage their own financial firm from within while earning huge bonuses. William K. Black coined the term "control fraud." As a regulator during the 1980′s S&L crisis, he helped initiate over 1,000 felony indictments. Yet the much larger 2008 crisis produced zero felony indictments.
The financial services industry has grown like an algae bloom with the help of taxpayer bailouts and ongoing subsidies, all of which increase our debt. According to a study by Harvard professors David Scharfstein and Robin Greenwood, in 1950 the financial industry accounted for only 2.8 percent of GDP; in 1980 it accounted for 4.8 percent of GDP; and in 2007, it accounted for 7.9 percent of GDP. In 2011, the Commerce Department reported the financial sector accounted for 8.4 percent of GDP, and represented 30 percent of corporate profits.
If proceeds of U.S. debt had been invested for roads, high speed railroads, new industries, cheap energy, airports, and to fund scientific research, the debt would self-liquidate.
But the bailouts came with a huge component of dead-end financing designed to let bankers suck rents from the financial system. The Fed monetizes debt through asset purchases and has been filling gaping holes in bank balance sheets.
The End of Fed Cred
ReplyDeleteIt must be scary to be a Federal Reserve governor. You have to pretend that you know what you’re doing when, in fact, Fed policy appears completely divorced from any sense of consequence, or cause-and-effect, or reality — and if it turns out you’re not so smart, and your policies and interventions undermine true economic resilience, then the scuttling of the most powerful civilization in the history of the world might be your fault — even if you went to Andover and wear tortoise-shell glasses that make you appear to be smart.
The Fed painted itself into a corner the last few years by making Quantitative Easing a permanent feature of the financial landscape. QE backstops everything now. Tragically, additional backdoor backstopping extends beyond the QE official figures (as of December 2013) of $85 billion a month. American money (or credit) is being shoveled into anything and everything, including foreign banks and probably foreign treasuries. It’s just another facet of the prevailing pervasive dishonesty infecting the system that we have no idea, really, how much money is being shoveled and sprinkled around. Anything goes and nothing matters. However, since there is an official consensus that you can’t keep QE money-pumping up forever, the Fed officially made a big show of seeking to begin ending it. So in the Spring of 2013 they announced their intention to “taper” their purchases of US Treasury paper and mortgage paper, possibly in the fall.
Well, it turned out they didn’t or couldn’t taper. As the fall equinox approached, with everyone keenly anticipating the first dose of taper, the equity markets wobbled and the interest rate on the 10-year treasury — the index for mortgage loans and car loans — climbed to 3.00 percent from its May low of 1.63 — well over 100 basis points — and the Fed chickened out. No September taper. Fake out. So, the markets relaxed, the interest rate on the 10-year went back down, and the equity markets resumed their grand ramp into the Christmas climax. However, the Fed’s credibility took a hit, especially after all their confabulating bullshit “forward guidance” in the spring and summer when they couldn’t get their taper story straight. And in the meantime, the Larry-Summers-for-Fed-Chair float unfloated, and Janet Yellen was officially picked to succeed Ben Bernanke, with her reputation as an extreme easy money softie (more QE, more ZIRP), and a bunch of hearings were staged to make the Bernanke-Yellen transition look more reassuring.
And then on December 18, outgoing chair Bernanke announced, with much fanfare, that the taper would happen after all, early in the first quarter of 2014 — after he is safely out of his office in the Eccles building and back in his bomb shelter on the Princeton campus. The Fed meant it this time, the public was given to understand.
http://www.zerohedge.com/news/2014-01-06/jim-kunstlers-2014-forecast-burning-down-house
You're assuming the Fed had "cred" to begin with.
DeleteTo anyone paying attention, it constitutes the largest counterfeiting operation in world history. A private banking cartel with a monopoly power on the creation of "money" and the world's reserve currency? What could possibly go wrong with this arrangement?
2014: Investing in a World of Hyper-aggressive Monetary Policy
DeleteThe growth of the U.S.'s bigger and broader productive economy has been stunted by bad policies and bank bailouts benefiting rent-seeking financiers siphoning off an outsized percentage of the nation's gross domestic product (GDP).
Rent-seeking companies lobby Congress for subsidies for activities that do not benefit society.
Moreover, beneficiaries of Congressional largesse damaged society by engaging in control fraud, wherein parasites damage their own financial firm from within while earning huge bonuses. William K. Black coined the term "control fraud." As a regulator during the 1980′s S&L crisis, he helped initiate over 1,000 felony indictments. Yet the much larger 2008 crisis produced zero felony indictments.
The financial services industry has grown like an algae bloom with the help of taxpayer bailouts and ongoing subsidies, all of which increase our debt. According to a study by Harvard professors David Scharfstein and Robin Greenwood, in 1950 the financial industry accounted for only 2.8 percent of GDP; in 1980 it accounted for 4.8 percent of GDP; and in 2007, it accounted for 7.9 percent of GDP. In 2011, the Commerce Department reported the financial sector accounted for 8.4 percent of GDP, and represented 30 percent of corporate profits.
If proceeds of U.S. debt had been invested for roads, high speed railroads, new industries, cheap energy, airports, and to fund scientific research, the debt would self-liquidate.
But the bailouts came with a huge component of dead-end financing designed to let bankers suck rents from the financial system. The Fed monetizes debt through asset purchases and has been filling gaping holes in bank balance sheets.
http://www.huffingtonpost.com/janet-tavakoli/2014-investing-in-a-world_b_4552942.html
And the scapegoat takes the field...
ReplyDelete