Time For Bernanke To Retract His Sworn Testimony To Congress

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    Sancho
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    Time For Bernanke To Retract His Sworn Testimony To Congress






    Three months ago, as part of our ongoing explanation of what happens next to the Fed's balance sheet (which is now established as official canon in advance of the December 12th FOMC, when Bernanke will effectively announce QE4 consisting of $40 billion in MBS and $45 billion in unsterilized TSY purchases as we predicted the day QE3 was announced), we said that "the Fed will continue increasing its 10 Yr equivalents by roughly 12% (of the total market) per year, for at least the next 3 years, at which point it will own 60% of the entire Treasury market. It means that the Fed will monetize all gross long-term issuance every year for the next 3 years." Most looked at the bold sentence without it registering just what it means. Perhaps, now that the "serious" media has finally taken on the topic of applying a calculator to the one driver of all marginal risk demand, it will register a little better. In a Bloomberg story titled, appropriately enough "Treasury Scarcity to Grow as Fed Buys 90% of New Bonds" we read that "the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it?s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co." Actually that's incorrect and it is more like 100%. What is however 100% correct is what the bolded means in plain language: it is now accepted that the Fed will outright monetize all gross US issuance. Let us repeat this sentence for those who just had flashbacks to Adam Fergusson's "When money dies." The Fed is now monetizing practically all net new debt. So what did the Chairman say about this absolutely certain eventuality back in 2009 to Congress...




    Our only question: was the Chairman simply lying of lying under oath?
    And finally, because it appears it takes the MSM between 3 and 36 months to catch up to Zero Hedge, there is another relevant question that we posed 3 months ago:
    Another way of visualizing this is how many assets as a percentage of US GDP the Fed will hold on its books. Currently, this number is 18%. By the end of 2013, the Fed's historical flow operations will be accountable for 24% of US GDP.




    Why is this important? Simple: when the time comes for the Fed to unwind its balance sheet, if ever, the reverse Flow process will be responsible for deducting at least 24% of US GDP at the time when said tightening happens. If ever.
    Hence no unwind. We are confident to state this, just as we were confident with our other forecast from three months ago:
    What is scariest, is that as of this moment, all of this is priced in. Any incremental gains in the stock market will have to come from additional easing over and above what Bernanke just announced.
    What Bernanke implicitly, and in one week explicitly, has announced is that it now takes $85 billion in monthly Flow injection from the Fed just to keep the market from collapsing. Oh, yes, and the market still has to surpass the highs seen the day after QEternity was announced.

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    Don't fight the fed. Real estate is in the sweet spot right now.

  3. #3
    Is Doin It 4 Da Shorteez
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    LOL...creating money and wealth out of thin air and debt. the global financial sector is officially a total joke. and people have the nerve to call that a "free market" and don't want to regulate it to death.
    William F. Buckley describes a conservative as, "someone who stands athwart history, yelling Stop." - and then proceeds to drag civilization back to times best left in history's dungheap.

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    Is Doin It 4 Da Shorteez
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    when you create "money" out of nothing the "new money" or credit/debt is placed at the disposal of the entrepreneur, gives him purchasing power alongside everyone else, despite there being no new goods or services to back the money. The process amounts to compressing the existing purchasing power.? He goes on to say that all forms of credit instruments can have the same function, if not backed by real assets, a conclusion shared in the banking orthodoxy.

    When the price changes which thus become necessary are completed, any given commodities exchange for the new units of purchasing power on the same terms as for the old, only the purchasing powers now existing are all smaller than those existing before and their distribution among individuals has been shifted. So in other words, the result of creating money out of nothing is inflation, and a redistribution of existing wealth. Money that is un-backed, i.e. does not refer to a real-world exchange of goods or services, crowds out money that is backed, with the result that overall the average purchasing power of money drops.

    in essence it's legalized forgery as it has the same effect. forged notes reduce the purchasing power of "real notes" and the effects are felt the most on those that actually provide goods and services that are tangible.
    William F. Buckley describes a conservative as, "someone who stands athwart history, yelling Stop." - and then proceeds to drag civilization back to times best left in history's dungheap.

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