Hoh, hoh.... they say he's got to go go go BondZilla!
But Ben, you said this wouldn't happen! You said you had it all under control. That rates on the long end would go down, not up....
Never mind that there was never a bit of evidence you were doing anything other than either lying or "wishcasting" - pick one.
Why? Because the last time Bernanke did "QE", the so-called "QE1" (now), bond rates actually went up, not down, and now it's happening again.
Surprised?
I'm not.
At all.
Why not? Because there is no exit plan, Bernanke knows it, he's lying, and the market has figured it out.
Here's the problem in the main. Bernanke's only tool to "tighten" monetary policy means selling bonds into the market and taking in cash from the system.
But what happens if he holds bonds that have all gone down in value? He gets screwed, that's what. In an extreme case The Fed could go "bankrupt." Bernanke will avoid this, of course, and he can - but only by not soaking up that liquidity - that is, allowing the cash he printed to remain in the system while the rotting bonds he bought are "absorbed" by The Fed.
The market knows this. It also knows that the duration of his holdings has gone up a lot and that he cannot pull enough liquidity via short-term roll-off to matter - that is, despite his claim of being "100% confident" he cannot tighten policy - not now and not for many years.
The market thus sees risk - that if the economy improves you get inflation, and lots of it, as Bernanke can't do anything about it. If the economy doesn't improve then the only way for the government to continue spending like crazy, which it clearly is going to do, is to continue to devalue the currency, which means interest rates go up too as commodities will continue to skyrocket (priced in dollars) and this will destroy the tax base upon which government funding rests from the bottom up.
I talk a lot about the tax base, which is best-represented as the labor participation rate. It sucks, it is not improving, and it cannot improve so long as commodity prices continue to ramp and the currency devaluation continues:
This was the prime error made during The Depression. Contrary to Bernanke's claims of being "a student" of The Depression he's really the Fool-in-Chief of that time. FDR's devaluation of the currency trashed the tax base and guaranteed sky-high unemployment for the same reason it's happening now - devaluation of the currency destroys the finances of the middle class and below as their spending on essential commodities (food, fuel, clothing) is not only more-or-less fixed in volume (which means their cost to those people ramps as price rises) but as a percentage of income this expenditure is much higher than it is for upper-income earners.
That in turn suppresses entry-level and lower-wage jobs, which holds down the labor participation rate. And it is that labor participation rate that drives the ability of government to collect taxes - you can only tax someone who has income, and only people pay taxes - all attempts to tax any other entity, such as corporations, are simply passed through to people.
It is not a coincidence that after stabilizing this chart took a major second leg down when Bernanke initiated QE1 - April of 2009. It is also not a coincidence that it began to recover when QE1 ended around the beginning of 2010 nor that when Bernanke started to threaten QE2, in the summer of 2010, that it weakened again and continues to weaken.
This is the precise dynamic that played out in the 1930s and Bernanke is causing it, not reacting to it.
Yesterday afternoon Obama made reference to Mitch McConnell and he "not being willing to threaten the sovereign credit of the United States."
Mr. President, you, in re-nominating Bernanke and not putting a stop to both the outrageous deficit spending and allowing Bernanke to back himself into this corner without removing him, have destroyed the sovereign credit of the United States.
You may not recognize it yet, and neither has the market in the main, but I assure you that recognition will come, and precisely where the "tipping point" happens to be where you no longer have any meaningful degree of control over the situation is not determinable in advance.
And before you start spouting off about how smart you and Bernanke are, remember that neither Iceland, Greece or Ireland knew where that tipping point was in advance either.
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You simply raise more taxes than you spend, and get the government to buy back the bonds from the Fed, and then cancel them. Hey presto, debt is gone, and the total money supply in the economy is reduced.
All that is needed is for the state to run a budget surplus. What could be easier?
"I talk a lot about the tax base, which is best-represented as the labor participation rate. It sucks, it is not improving, and it cannot improve so long as commodity prices continue to ramp and the currency devaluation continues"
Outstanding point. Unemployment is on the rise. The economy cannot create enough job to off set the 100,000 or so people that enter the job market every month, more or less to offset the job loses. If a wage is not earned no taxes will be paid. If no wage is paid, than the individual will not be spending any money, which will hurt business, disproportionately those operating on margin, and they will need a bailout, or to cut more jobs.
If there is not a better distribution of wealth among the people, the extreme concentrations will, like an engine running without oil lock up tight, and that is, as I understand it, what is happening now.
I have no idea how to reverse it other than to take from the rich and give to the poor, but that is not going to happen, and it appears that many in power would rather see some form of neo-feudalism occur rather than be generous with what life has given to them. It really is sad when greed is god, and ultimately the inevitable outcome of capitalism as practiced under the influence of greed.
What you are saying is basically paying off the debt helps with this. And that is basically all that we have here.
We are now at a point, where the debt is so huge, that in the grand scheme of things 2 things happen.
1) No one will want to lend us money without a significant premium (thus raising rates) 2) As we use more and more of our budget to pay off the debt obligations as total revenue keeps dropping, rates will rise due to just absolute risk of us defaulting at some point.
I think Chris Whalen talks about this, but I think destroying the currency is not as 'easy' as people think. If the U.S were to intentionally try to kill the dollar, then every other country will try to do the same in a massive race to the bottom, thus relative currency strength would not be as noticeable.
The only way that the dollar gets totally destroyed REALLY, is if Ben starts printing naked dollars. The day that happens though, the U.S is essentially admitting fiscal default.
What is "funny" is the fool stands up there and tells you he is protecting the "hostages" from the terrorists by borrowing and wasting another trillion or so but what he doesn't say is that he is trading your children and grandchildren to the terrorists in return for "freeing" you to continue spending now.
Man, it's really a coward who is willing to swap places with his children to be free from a terrorist.
How long until this clown is run out of town?
He and the dumbass pugs have no intention of stopping. Cowards.
yes, it is quite difficult to do QE unless you run a budget deficit. The deficits create bonds which can be bought. Unless you do the infamous helicopter drop of course. So a budget surplus is really necessary for Quantitative Tightening.
The only other real way in which you can tighten is to do a reverse helicopter drop, which I guess would mean burning notes at random, even if you have to break into peoples houses and banks to get hold of those notes. Not practicable.
Just on CNBC Santelli said, if I got this right, if they could roll over the $14 Trillion debt today, which they obviously couldn't , the interest would be $30,000,000,000 a day!
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“The problem with socialism is that, sooner or later, you run out of other people’s money.” Thatcher
Widgeon
Posts: 13481
Incept: 2007-08-30
Region formerly known as the United States
As before, the REAL solution in August'07 was to RAISE the fed's target interest rates and DETONATE the Rotten Debt ... or, at least give a clear signal to "the market" that the taxpayer(s) was not going to be footing this and that prudent conservative saving behavior would be rewarded. Instead he (they) did just the opposite ... a dcarn near textbook replay of the 30's in motion where the one problem "they" could never solve before the war was Unemployment. It's happening again.
Although times are different and I don't want to over-simplify ... these events show us the Genius and Moral Choice that was Volcker's attack against similar problems in the 80's, he did the right thing.
What if Bernanke's Plan is for the FED to gorge on Treasury Debt paid for with Printed Money?
Inflation does not matter to an entity that can print as much Money as It likes at will.
Inversely; deflation just means that there is greater opportunity for the Banks and Cash/Credit Rich Corporations and Individuals to buy up American Properties and Assets on the Cheap.
What happens if the FED 'Buys' 5 or 10 or 20 Trillion Dollars in US Treasuries and just waits out the duration? The money never existed before the FED created it out of thin air. How can any loss of this bogus Money harm the FED; if it costs nothing to print in unlimited quantities?
IF the US Government does hike Taxes to pay for all this spending; it would be the FED Cartel holding those Treasuries bought with phony printed Money that would effectively soak the Taxpayers via the Gunpoint of the Government. To My knowledge the US Government has never defaulted on It's Own Central Bank.
Lastly: IF rates go up; then don't the Treasuries pay MORE Noney to the Holders thereof in the form of Higher Coupon?
Why wouldn't the FED want to buy and hold Assets with ( rapidly ? ) appreciating Coupon Structures?
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DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell
Cutemloose
Posts: 699
Incept: 2008-02-12
Southern England
Its all about value add.
The behavior of peope must change so that they add more value than they consume.
Its no good robbing the rich to give to the poor, its no good borrowing (with the aim of cancelling the debt),its no good increasing tax rates, its no good just devaluing the currency-
There is only one way to get thru this, and thats to add more value than you consume. You guys buy $1/2trillion more stuff a year than you sell (trade deficit). You borrow to subsidise this- gov, corp and private debt.
You must make imported stuff more expensive (to reduce consumption) and increase the advantage to those that work and those that supply jobs (increase production).
Everyone just lobbies for a bigger share of the cake, when will they start trying to increase the size of the cake?
Problem is making cake requires work.
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Disclosure: I am of the Austrian school, of Rothbardian persuasion. I believe in minimal government. Spent 5 years and possibly $1million to see if business can be run on this basis (leaderless). Good news for me is that it can, and profitably, bad news is that it only works with responsible people.
Throx: No, the increased coupon (interest) is only on NEW issues. EXISTING bonds devalue to match the duration/yield curve of the new issue.
If I have a 4% 10 year bond (face $10k, earns $400/yr in interest) what would you pay me for it if it has 9 years of duration left but the new bonds yield 6% ($600/year)?
Much less than $10,000, right? In fact you're going to discount that face value by the foregone interest that you could otherwise get by buying the NEW bond.
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I don't care if it makes sense -- only if it makes money. -- Me Bank (n): See scam, fraud and theft.Eat a bankster -- they're low-carb. What part of "shall not be infringed" was unclear?
BUT -it's STILL Interest on Phony Printed Money the FED pulled out of It's ass. -& a return of the Phony Printed Principal...
Wouldn't YOU take the $400 a year Coupon on a Counterfeit/Phony Money purchase if YOU could; -and not give a damn about the new $600 a year Coupon Bond. -Hey, ****; print some new Phony Money and buy the new $600 a year Coupon Bond, too!
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DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell
Widgeon
Posts: 13481
Incept: 2007-08-30
Region formerly known as the United States
FWIW, I agree w/ Throx's perspective which explains the Fed's general behavior for the last 40 years. The ENTITY that prints doesn't care because they can always make themselves whole. Until the lamp posts start calling.
Hoh, hoh.... they say he's got to go go go BondZilla!
With a purposeful grimace and a terrible sound He pulls the inflated bond prices down
Helpless people in pensions plans Scream bug-eyed as he looks at them
He picks up a bus and throws it back down and he wades through the buildings toward the center of town
Oh no, they say he's got to go Go go Bondzilla!
Oh no, there goes Washington Go go Bondzilla!
History shows again and again how markets point up the folly of Ben Bondzilla!
-Uwe-
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“Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery under arbitrary power, they put themselves into a state of war with the people, who are thereupon absolved from any further obedience.” - John Locke
so far it seems that the recession is nearly over, inflation low and confidence is back in the US. what could possibly go wrong - Europe maybe ?
like everyone piling into T-Bonds and lowering the yield....
This is far from over but it took 20 years from the time they started lowering rates in the 1990s until it blow-up in 2008. it might 20 more years ? na only 12.
sorry if I sound sarcastic - I just don't believe in bond vigilantes anymore.
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For every crash the probability of someone showing that he predicted it is near 1 .
For every prediction of an imminent crash the probability of it being correct is almost zero
“Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery under arbitrary power, they put themselves into a state of war with the people, who are thereupon absolved from any further obedience.” - John Locke
He looks cute.... until he starts stepping on buildings....
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I don't care if it makes sense -- only if it makes money. -- Me Bank (n): See scam, fraud and theft.Eat a bankster -- they're low-carb. What part of "shall not be infringed" was unclear?
Themortgagedude
Posts: 8849
Incept: 2007-12-17
saint louis
Online
Another bad day in the bond market going on. Methinks the bond market is not reacting to Bernanke so much as the 536 's in Washington DC. The rejection of the Deficit Commission along with a double dealing deal that screwed the creditors in about 5 ways shows that Washington has no other plan than to run us into the wall.
If it were just that dumbass buying treasuries then supply of them would be going down along with demand going up. But with him buying them along with the government continually overspending that means that the supply of treasuries is going up and it appears that demand for them has gone down as well (even with Ben in the game). Economics is a bitch isn't it Ben.
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I'm already visualizing you with duct tape over your mouth.
's in Washington DC. The rejection of the Deficit Commission along with a double dealing deal that screwed the creditors in about 5 ways shows that Washington has no other plan than to run us into the wall.