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http://www.dallasfed.org/news/speeches/fisher/2013/fs130805.cfm

Horseshift! (With Reference to Gordian Knots)

...

Years of Extraordinary Measures

For six of my eight years at the Fed, we have been working to bring the nation’s economy out of recession. The fiscal authorities have for the most part been AWOL during this time, having left the parking brake on during their absence. This has placed the onus on the Bernanke-led Federal Reserve. We have undertaken extraordinary measures, first to get the economy out of the emergency room after the financial system seizure of 2008-09, and more recently, to goose up the private sector to expand payrolls. Toward this end, the Fed cut interest rates to their lowest levels in the nation’s 237-year history by initially cutting the base rate for overnight interbank lending—the “fed funds rate”—to near zero, and then by purchasing massive amounts of U.S. Treasuries and bonds issued or backed by U.S. government-sponsored enterprises (obligations of Fannie Mae and Freddie Mac).

This later program is referred to as quantitative easing, or QE, by the public and as large-scale asset purchases, or LSAPs, internally at the Fed. As a result of LSAPs conducted over three stages of QE, the Fed’s System Open Market Account now holds $2 trillion of Treasury securities and $1.3 trillion of agency and mortgage-backed securities (MBS). Since last fall, when we initiated the third stage of QE, we have regularly been purchasing $45 billion a month of Treasuries and $40 billion a month in MBS, meanwhile reinvesting the proceeds from the paydowns of our mortgage-based investments. The result is that our balance sheet has ballooned to more than $3.5 trillion. That’s $3.5 trillion, or $11,300 for every man, woman and child residing in the United States.

The theoretical mechanics behind QE are straightforward: When the Fed buys Treasuries and MBS, it pays for them, putting money into the economy. A key intent of this unprecedented program was to drive down interest rates to such a degree that businesses would achieve a financial comfort level that would induce them to put back to work the millions of Americans that were laid off in the Great Recession. Thus far, only 76 percent of the jobs lost during 2008-09 have been clawed back in the more than three and a half years of modest to moderate payroll gains. This 76 percent figure does not include the 3 million or so jobs that would normally be created to absorb growth in the working-age population.

...

The Challenge of Untying the Monetary Gordian Knot

The challenge now facing the FOMC is that of deciding when to begin dialing back (or as the financial press is fond of reporting: “tapering”) the amount of additional security purchases. In his press conference following our June FOMC meeting, speaking on behalf of the Committee, Chairman Bernanke made clear the parameters for dialing back and eventually ending the QE program. Should the economy continue to improve along the lines then envisioned by Committee, the market could anticipate our slowing the rate of purchases later this year, with an eye toward curtailing new purchases as the unemployment rate broaches 7 percent and prospects for solid job gains remain promising.

Kindly note that this does not mean that the Committee would envision raising the shorter term fed funds rate simultaneously; indeed, the Committee has said it expects this pivotal rate to remain between 0 and ¼ percent at least as long as the unemployment rate remains above 6.5 percent, intermediate prospects for inflation are reasonable, and longer-term inflationary expectations remain well anchored.

Having stated this quite clearly, and with the unemployment rate having come down to 7.4 percent, I would say that the Committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months.

This is a delicate moment. The Fed has created a monetary Gordian Knot. You can see the developing complexity of that knot in this sequence of slides tracing the change in our portfolio structure with each phase of QE.

So the Fed buys debt with money which it just creates out of thin air and has got the market hooked 100% meaning any unwinding will cause widespread panic. I wonder what chaos would be caused if they moved rates up and how many jobs would be lost?

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http://www.dallasfed...13/fs130805.cfm

Horseshift! (With Reference to Gordian Knots)

So the Fed buys debt with money which it just creates out of thin air and has got the market hooked 100% meaning any unwinding will cause widespread panic. I wonder what chaos would be caused if they moved rates up and how many jobs would be lost?

Here you mean :lol:

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http://www.dallasfed...13/fs130805.cfm

Horseshift! (With Reference to Gordian Knots)

So the Fed buys debt with money which it just creates out of thin air and has got the market hooked 100% meaning any unwinding will cause widespread panic. I wonder what chaos would be caused if they moved rates up and how many jobs would be lost?

By posting that you have just sent the currency markets into turmoil. :rolleyes:

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http://www.dallasfed...13/fs130805.cfm

Horseshift! (With Reference to Gordian Knots)

So the Fed buys debt with money which it just creates out of thin air and has got the market hooked 100% meaning any unwinding will cause widespread panic. I wonder what chaos would be caused if they moved rates up and how many jobs would be lost?

Do these Fed goons really believe what they're saying, or is it just disinformation? Fed SOMA is +27% yoy, house prices are +13.5%, stock market is +22%, jobs are up... 1.7%.

They have to taper because QE infinity is an inflationary menace. Too much newly printed money and not enough Treasury paper to absorb it which is why prices are soaring.

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Former Fed Chairman Paul Volcker's impassioned plea for the Fed to have the guts to stand up to the Treasury and politicians to ensure that price stability is its primary – and indeed only - objective going forward:

The Fed & Big Banking at the Crossroads

The initial steps taken in the midst of the depression of the 1930s to support the economy by keeping interest rates low

were made at the Fed’s initiative. The pattern was held through World War II in explicit agreement with the Treasury.

Then it persisted right in the face of double-digit inflation after the war, increasingly under Treasury and presidential

pressure to keep rates low.

The growing restiveness of the Federal Reserve was reflected in testimony by Marriner Eccles in 1948:

"Under the circumstances that now exist the Federal Reserve System is the greatest potential agent of inflation that

man could possibly contrive."

It's a pity we can't have Volcker back there when Bernanke goes.

Instead we may get Larry Summers.

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It's a pity we can't have Volcker back there when Bernanke goes.

Instead we may get Larry Summers.

Good to see you around more often nowadays.

Good article about Volcker and he too realised that 2013 is not 1951. At least in 1951 there wasn't an expectation of a Fed put and today's market is drowned in moral hazards.

As for next Fed cheif.. they may need a foreign talent..

No one is more qualify than this chap though (Z(imbabwe)RB Chief...)

http://en.wikipedia.org/wiki/Gideon_Gono

Edited by easy2012

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http://www.zerohedge.com/news/2013-08-11/where-feds-excess-reserves-are-going-51-foreign-banks-49-domestic

As shown here previously, there is a direct correlation between the excess reserves created by the Fed, and the cash holdings of domestic and foreign banks (operating in the US) disclosed by the Fed's weekly H.8 statement. So with the Fed's reserves reaching new all time highs with every week courtesy of the $85 billion in monthly flow injected by the Fed...

... some wonder where is this cash ending up. The answer: in the week ended July 31, a record $1,157 billion was parked with foreign banks in the US, while "just" $1,112 of the Fed's created reserves was allocated to US banks.

This breakdown is shown in the chart below:

Or, in short, the Fed's QE-created reserves have gone to:

Foreign banks: 51%

Large-domestic banks: 36%

Small domestic banks: 13%

At least someone is benefiting from the Fed's generosity, in that order.

Charts at the link.

It would be interesting to see the breakdown of which foreign banks are getting the cash.

Still I'm sure it's all going to well. What could go wrong...

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Former Fed Chairman Paul Volcker's impassioned plea for the Fed to have the guts to stand up to the Treasury and politicians to ensure that price stability is its primary – and indeed only - objective going forward:

The Fed & Big Banking at the Crossroads

It's a pity we can't have Volcker back there when Bernanke goes.

Instead we may get Larry Summers.

It's a greater pity Congress have abdicated their responsibilities and are leaving it all up to the FED. Ben's made this point ad nauseam for years now.

Not sure why a Volcker is needed. Inflation is 1%. Houses aren't in a bubble, equities are where they were 5 years ago, oil and commods are well off. Really don't get where you're coming from at all.

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It's a greater pity Congress have abdicated their responsibilities and are leaving it all up to the FED. Ben's made this point ad nauseam for years now.

Not sure why a Volcker is needed. Inflation is 1%. Houses aren't in a bubble, equities are where they were 5 years ago, oil and commods are well off. Really don't get where you're coming from at all.

I can only assume that you didn't actually read the article then.

Volcker's not simply considering the situation NOW. He's expressing concern about what may lie ahead of us.

Since Volcker has spent most of his working career at the Fed, the Treasury, and in commercial banking, and has experienced at first hand the political pressures that accompany the setting of monetary policy, you'll have to forgive me for giving more credence to his assessment of the situation than yours.

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Ken Rogoff (of "This Time Is Different" fame) would be happy to see either Larry Summers or Janet Yellen take the Fed Chair - because in his view they are both dovish on inflation. He advocates aggressive monetary stimulus to create more inflation.

"In more normal times, you're looking for the central banker to be an anchor against high inflation expectations and to assure investors that inflation will stay low and stable to keep interest rates down," Rogoff said in an interview. Now "we're in this situation where many of the central banks of the world need to convince the public of their tolerance for inflation, not their intolerance."

Bloomberg

Summers and Yellen are the current front-runners to succeed Bernanke.

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http://www.zerohedge...nks-49-domestic

Charts at the link.

It would be interesting to see the breakdown of which foreign banks are getting the cash.

Still I'm sure it's all going to well. What could go wrong...

The Fed, BoJ, ECB and BoE transact with the self-same primary dealing banks or their local affiliates. It's one big pool of liquidity.

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http://www.zerohedge.com/news/2013-08-15/good-luck-unwinding

A few months ago, when discussing the most pertinent topic for Bernanke and his merry central-planning men we said that "with every passing week, the Fed's creeping takeover of the US bond market absorbs just under 0.3% of all TSY bonds outstanding: a pace which means the Fed will own 45% of all in 2014, 60% in 2015, 75% in 2016 and 90% or so by the end of 2017 (and if the US budget deficit is indeed contracting, these targets will be hit far sooner). By the end of 2018 there would be no privately held US treasury paper. Still think QE can go on for ever?" What followed was 3 months of heated debate on whether the Fed will or will not taper which for some reason were focusing on the wrong thing - the economy. Ironically, how the economy is doing has nothing to do with the Fed's decision, which is entirely decided by the increasing shortage of private sector "quality collateral" i.e., bonds.

How big is this shortage? As noted above, the Fed's literally absorbs ~0.3% of the bond market each week. And according to the most recently released Fed balance sheet data, this is indeed the case. According to SMRA calculations, the Fed owned about 31.47% of the total outstanding ten year equivalents. This is above the 31.24% from the prior week, and higher than the 30.99% from the week before - a rate of increase almost in line with what we predicted. Inversely this means that the percentage of ten-year equivalents available to the private sector decreased to 68.53% from 68.76% in the prior week. Long story short, the Fed just soaked up 0.23% of the bond market in one week and half a percent in two weeks, a ratio that will only increase in time, and unless there is a taper, may reach 0.5% per week.

..

What said clueless economists never seem to grasp is that a Fed whose balance sheet is full of 3 month bills is completely diffrerent than a Fed whose balance sheet is full of 30 Year bonds. And the best way to represent that is by showing the 10 Year equivalent holdings of the Fed.

Presenting Exhibit A: the Fed's balance sheet represented in the form of 10 Year equivalent holdings.

10%20Yr%20Equivalents.gif

The long-term average is ~4%. As noted above, it just hit 31.47% this week. And even with a taper (especially since the untaper will be just around the corner once the market crashes and the Fed has no choice but to jump right in), we fully expect that the Fed will hit its current SOMA limit of 70% of any and every CUSIP across the curve by 2016.

So will they just keep buying and hope no one knows?

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Instead we may get Larry Summers.

These people seem to have a unique ability to fail upwards- not only did Summers prevent the regulation of over the counter derivatives when Brooksly Bourne tried to get control of the market- he also lost Harvard nearly a billion dollars while running their investments.

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http://www.bloomberg.com/news/2013-08-23/fed-burned-once-over-taper-now-twice-shy-approaching-qe3-change.html

U.S. central bankers have $3 trillion of losses reminding them they had better get their communications right should they decide to taper their bond purchases.

That’s how much global equity markets declined in the five days after Federal Reserve Chairman Ben S. Bernanke’s June 19 remarks that he may reduce his $85 billion in monthly securities buying this year and halt it altogether by mid-2014. His comments pushed the yield on the benchmark 10-year Treasury to a 22-month high.

Since then, he and his colleagues have sought to convince investors that paring stimulus doesn’t signal a tightening of monetary policy. They will need to reinforce that message to prevent another premature interest-rate rise if the Federal Open Market Committee goes ahead with the move, said Ward McCarthy, chief financial economist at Jefferies LLC in New York.

“They want to get back to a neutral balance-sheet policy but that doesn’t mean they want rates to skyrocket here,” said McCarthy, a former Richmond Fed economist. “The market is hypersensitive,” and the taper represents “the beginning of the end” of unprecedented monetary stimulus.

The Fed has kept its benchmark federal funds rate near zero since December 2008, and three rounds of so-called quantitative easing swelled its balance sheet to a record of $3.65 trillion.

Luckily market manipulation always ends well. It never blows up in your face.

In Bernanke we have an expert of epic proportions.

http://www.youtube.com/watch?v=sJcy4w2_Dro

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Peter Schiff Was Right Video Part Deux” is now out and I expect this one to go viral as well. In this case, pundits laugh at Peter’s insistence that there will be no taper and that it was all a bluff (they pull off the same bluff every year). It ends in classic fashion with Bob Pisani explaining to the dwindling audience at CNBC that “no one saw it coming.”

I guess we’re back to that again. The next crisis can’t be far off.

http://www.zerohedge.com/news/2013-09-25/peter-schiff-was-right-part-deux-%E2%80%9Ctaper%E2%80%9D-edition

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Peter Schiff Was Right Video Part Deux" is now out and I expect this one to go viral as well. In this case, pundits laugh at Peter's insistence that there will be no taper and that it was all a bluff (they pull off the same bluff every year). It ends in classic fashion with Bob Pisani explaining to the dwindling audience at CNBC that "no one saw it coming."

I guess we're back to that again. The next crisis can't be far off.

http://www.zerohedge...2%80%9D-edition

:lol::lol:

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Janet Yellen will be named as next chair of the Federal Reserve later today.

NBC news

Edit: This is a nomination by the way that will require a Senate vote, but it's unlikely to be blocked.

Edited by FreeTrader

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http://uk.reuters.com/article/2013/10/09/uk-usa-fed-idUKBRE99715620131009

U.S. President Barack Obama will nominate Fed number two Janet Yellen on Wednesday to run the world's most influential central bank, providing some relief to markets that would expect her to tread carefully in winding down economic stimulus.

The nomination will put Yellen on course to be the first woman to lead the institution in its 100-year history. The advocate for aggressive action to stimulate U.S. economic growth through low interest rates and large-scale bond purchases would replace Ben Bernanke, whose second term as Fed chairman expires on January 31.

Excellent, just the sort of person we need to bring economic wealth to everyone.

http://uk.reuters.com/article/2013/10/08/uk-usa-fed-yellen-facts-idUKBRE99717120131008

- She is seen as a dove on monetary policy, favouring strategies that bring down unemployment even at the risk of driving inflation higher. She has said she does not believe there is often conflict between the two Fed goals. "When the goals conflict and it comes to calling for tough trade-offs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target," she said in 1995.

- She has extensive policymaking experience. Before her appointment as Fed vice chair in 2010, Yellen took part in U.S. monetary policymaking as president of the San Francisco Federal Reserve Bank from 2004-2010, and as a governor on the Fed board from 1994 to 1997. She also chaired President Bill Clinton's Council of Economic Advisors from 1997 to 1999.

- Yellen is a sharp and respected economist. With a PhD from Yale, she has taught economics at University of California, Berkeley, Harvard University and the London School of Economics, and she has published research on topics as disparate as youth gangs, single mothers, optimal monetary policy, wage and price rigidity, and trade.

- Economics saturates her personal life as well. She is married to, and has co-authored a number of papers with, Nobel Prize-winning economist George Akerlof, whom she met in the fall of 1977 when they were both economists at the Fed board. They married the following June and left the Fed to teach at the London School of Economics. Their only child, now a university economics professor, knew he wanted to go into economics by the time he was 13.

Being wise and humane ensuring the poor can't afford the basics. How caring of her. I may have a look later to see what her papers say....

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