Tag Archives: federal reserve

The Fed’s Massive Shift

By Steve Saville

The Fed’s Massive and Unprecedented Shift

This post is a slightly-modified excerpt from a recent TSI commentary.

In the US, the commercial banks can create money and the Fed can create money. A chart showing the change in the US money supply therefore won’t directly tell us if the Fed was a creator of new money during the period covered by the chart. However, unlike the commercial banks, when the Fed monetises debt it boosts bank reserves as well as the money supply, which means that we can quickly identify the periods during which the Fed was a direct creator of new money by looking at a chart of the total quantity of US bank reserves. Such a chart is displayed below.

Continue reading The Fed’s Massive Shift

Janet Yellen Responds as a Central Banker Would

By Biiwii

Janet Yellen goes on the defensive…

Let’s try to untangle the web of Fed-speak going on here.  “Reality” for our purposes is defined as my opinion, obviously.

Yellen Defends Seven Years of Low Interest Rates in Letter to Nader


Warning that “an overly aggressive increase in rates would at most benefit savers only temporarily,” she argued in the letter released Monday in Washington that the Fed’s seven-year era of zero rates had sheltered American savers from dramatic declines in the value of their homes and retirement accounts.


It was a thing called deflation, which is a natural corrective to man-made, currency-compromising monetary policy that leverages the ‘value’ inherent in official ‘money’ in service to asset appreciation.  Periodically, this ‘money’ becomes valued as liquidity as the monetized economy deleverages from the official Fed-sponsored inflation (in this case, Alan Greenspan’s commercial credit bubble).  In other words, the “value of their homes” was a false economic signal to begin with.  So what she is saying is that the Fed’s seven-year era of zero rates have been a tool employed to forestall, you guessed it… reality.


“Many of these savers undoubtedly would have lost their jobs or pensions (or faced increased burdens from supporting unemployed children and grandchildren),” if the Fed had not acted with such force, she wrote.


Yes indeed, they would have.  That would have been due to the fallout from from the last time the Fed acted to delay an economic deleveraging.  So what you are saying Ms. Yellen, is that you have employed a different flavor (government vs. commercial credit) of the same solution that was in actuality, the cause of the problem to begin with.  See?  The consumer is now hopped up on government credit instead of mortgage products on this cycle.  From FloatingPath

government credit to the consumer, answer to janet yellen


Repeating that she and most of her colleagues expect the pace of policy tightening to be gradual after liftoff, Yellen said “overly aggressive” rate hikes could also undercut the economic expansion and force the Fed to reverse course back to zero, drawing a parallel with Japan, where rates have been stuck near zero for the past 25 years.


It’s a Kabuki Dance.

janet yellen does a kabuki dance


Yellen’s letter responded to a plea from a “group of humble savers” that included consumer advocate Ralph Nader frustrated by low returns gained from traditional bank deposits and money-market accounts.

“We want to know why the Federal Reserve, funded and heavily run by the banks, is keeping interest rates so low that we receive virtually no income for our hard-earned savings while the Fed lets the big banks borrow money for virtually no interest,” it read. “It doesn’t seem fair to put the burden of your Federal Reserve’s monetary policies on the backs of those Americans who are the least positioned to demand fair play.”

Yellen told the group that lower borrowing costs helped make large purchases more affordable for American consumers, supporting the economy and creating “millions of jobs.”


I didn’t know Ralph Nader was still around.  I remember him from when I was a kid, and I am pretty old.  To answer your question Ralph, the Fed has been keeping rates so low in order to make sure that enough of the economy deleverages from previous Fed-induced moral hazards.  The Fed has held savers in suspended animation in an effort to make powerful and abusive interests whole again.  It is these interests that matter to the Fed, not regular people.

As to the last paragraph, the average American consumer cannot make large purchases without ample credit (see graph above).  Households are no doubt better off today than they were in 2009 but again, we are talking about the cure being the disease.  Yellen is justifying a new flavor of the policy that created the “Great Recession” as the media came to call it.  It was not a great recession, it was a deflationary episode that unwound the Greenspan Fed’s excesses, and then deflation was kicked down road by the Bernanke/Yellen Feds as if it were just an empty can of Budweiser.

Zero Hedge Creates Drama Out of Nothing

By Steve Saville

[biiwii comment: Gary T, Otto Rock and Steve-O Saville… not expecting a plethora of Christmas cards from certain corners of the financial media and sub-media]

There was a post at ZeroHedge.com on 20th November titled “Fed To Hold An “Expedited, Closed” Meeting On Monday“. The title suggests that something strange is afoot, that is, that the Fed is up to something out of the ordinary. Hence the emphasis on the words “Expedited” and “Closed”.

To make sure that its readers get the message, the post goes on to state:

Given how awesome everything appears to be, judging by stocks and the tidal wave of FedSpeak of the last week confirming that rates are rising in December, we found it at least marginally ‘odd’ that out of the blue, the Fed would announce an ‘expedited, closed’ meeting on Monday…

Odd? Out of the blue? Really?

The author of the ZeroHedge post forgot to mention that these “expedited, closed” meetings happen with monotonous regularity. The one scheduled for Monday 23rd November will be the third one this month. And there were four in October, three in September, two in August and five in July. You can find the notice for the coming meeting and the records of previous similar meetings at http://www.federalreserve.gov/aboutthefed/boardmeetings/201511.htm.

Even the topic under discussion at the 23rd November meeting will be routine. The purpose of the meeting is: “Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.” A meeting with the same purpose happens every month. For example, there was one on 26th October, one on 15th September, one on 31st August and one on 27th July.

Always be aware of the agenda/bias of the news sources you use.

Replacing “Despite” With “Because of”

By Steve Saville

Way back in early-2009 and again in mid-2012 I wrote in TSI commentaries that if the story unfolded as I expected then a lot of future economic commentary would begin with the word “despite”, and that in most cases the commentary would be a lot closer to the truth if “despite” were replaced with “because of”. For example, a comment along the lines of “despite the huge monetary stimulus the economy remains weak” would be closer to the truth if it read “because of the huge monetary stimulus the economy remains weak.”

My 2009 assessment remains applicable in that most commentators still don’t get it and still use “despite” when they should be using “because of”. They still don’t realise that pumping money into the economy falsifies prices (including the price of credit, the most important price of all) in ways that make the economy less, not more, efficient. The reality is that the more the central bank tries to stimulate the economy via ‘loose’ money, the more it will HINDER economic progress.

A sensible way to use the word “despite” is in reference to plans for future stimulus. For example, it could reasonably be said that DESPITE the lack of logical support for creating money out of nothing and the evidence that previous QE programs did not help, it’s a near certainty that the Fed will introduce a new monetisation program if the economy gets much weaker. It could also be said that the US economy’s only hope is that the remnants of capitalism are strong enough to generate sustained improvement DESPITE the price distortions caused by the Fed.

Why Hasn’t the Fed’s QE Caused “Inflation”?

By Steve Saville

This post is a slightly-modified excerpt from a recent TSI commentary.

The Federal Reserve has monetised a few trillion dollars of bonds over the past seven years without creating much in the way of what most people call “inflation” (a rise in the general price level). How could this happen?

One popular explanation is that the Fed’s Quantitative Easing (QE) adds to bank reserves, but not the economy-wide money supply. According to this line of thinking, the ‘money’ created by the Fed to purchase bonds remains trapped in reserve accounts at the Fed. However, this explanation can be immediately eliminated, because as previously explained every dollar of QE adds one dollar to bank reserves at the Fed AND one dollar to demand deposits within the economy. The fact is that the economy-wide money supply is now a few trillion dollars larger thanks to the Fed’s QE.

Continue reading Why Hasn’t the Fed’s QE Caused “Inflation”?

FOMC, Speed Readers on Your Mark

By Biiwii

Bold mine

Release Date: October 28, 2015

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft [take a bow, Uncle Buck]. The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved slightly lower; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

In other words…

The committee has no effing idea what is out ahead so we do nothing (and hope the hell Uncle Buck calms down).

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

Look Back in Anger

By Doug Noland

Credit Bubble Bulletin: Look Back in Anger

October 16 – Wall Street Journal (Alan S. Blinder and Mark Zandi): “Don’t Look Back in Anger at Bailouts and Stimulus… Logic dictates that the size of any stimulus be proportional to the expected decline in economic activity—which was enormous in the Great Recession. The Recovery Act and other stimulus measures were costly to taxpayers, and thus much-maligned. But the slump would have been much deeper without them. The Federal Reserve has also come under attack for its unprecedented actions, especially its quantitative easing or bond-buying programs. Yet QE lowered long-term interest rates and boosted stock and housing prices—all to the economy’s benefit. Yes, QE has possible negative side-effects, but for the most part they have yet to materialize. Policy makers who botched the regulatory job before the crisis and shifted to fiscal restraint prematurely in 2011 can hardly be considered flawless. Yet one major reason why the U.S. economy has outperformed the plodding European and Japanese economies is the timely, massive and unprecedented responses of U.S. policy makers in 2008-09. So let’s get the history right.”

Continue reading Look Back in Anger

Pivotal Events

By Bob Hoye

The Fed is Behind the Action

bob hoye, pivotal events

Richard Fisher on FOMC: “Egg all over their face”

By Biiwii

Ex-Fed’s Fisher: FOMC members have egg all over their face

“I love my colleagues. You know that. I love the process of the FOMC, but they have egg all over their face,” he told CNBC’s “Squawk Box,” referring to the Federal Open Market Committee, the Fed’s policymaking body.

“Uncertainty is the enemy of decisionmaking. We know that as business people. Make a decision. Act on it.”

Very simply, the process we are in is one of unwinding the bullet proof confidence that has surrounded the Fed and supported financial markets ever since the most vocal, hyper-inflationist gold bugs were banished in 2011 (take another bow Op/Twist and its sanitized inflation signals).  Remember the cat calls of “Helicopter Ben”?

Manifestations of that confidence get aimed at me periodically when I write my Clown Car posts about the FOMC or otherwise show disrespect for authority.  Unbelievably, there are sycophants out there who are actually offended when some blogger has the nerve to question authority and a different flavor of high risk (at best) policy (official vs. commercial credit bubble this time vs. 2003-2007).  They come in the form of other bloggers and people who manage other peoples’ money (and just love Bernanke’s post-Op/Twist creation), among others.

Low lifes is what I consider them, much like those who fell in line behind Stalin and Pol Pot.  Well, that’s a little extreme.  They sanitized populations while our friends at the Fed have only sanitized inflationary signals, ha ha ha.

Anyway, Richard Fisher continues to tell the truth as he sees it.  He’s part of the clown show as microphones get eaten by various FOMC members and former members, amping up the confusion.  But at least he is consistent and in my opinion,  right to critique the current FOMC for its lack of clarity and decisiveness.