Nico Omer

“It seems that in this ‘brave new world’ the goalposts for failure/success have been sharply shifted. Failure is recession/depression, deflation, default, wealth destruction, social strife/conflict and possibly worse. Success now seems to revolve around a dynamic familiar to people who were around in the 1970’s … STAGFLATION looks set to be our ‘new normal’ (If we are lucky) in the years ahead.”

-Citigroup analyst Tom Fitzpatrick

Hari ini saya hanya ada 2 artikel untuk Anda baca, namun keduanya saya kategorikan artikel yang benar-benar MUST READS.  Yang pertama berjudul “The Fed Has Failed, Failed, Failed” oleh Charles Hugh Smith dari Of Two Minds blog yang coba menjawab pertanyaan siapa yang benar-benar memperoleh keuntungan dari eksistensi the Fed serta kebijakannya untuk meminjamkan “free money” ke sektor perbankan dengan bunga 0% dan ZIRP (zero interest rate policy).

Lebih lanjut Smith juga menjelaskan mengapa QE3 akan gagal, seperti QE1 dan QE2.  Secara ringkas, jika Anda masih belum tahu tujuan utama kebijakan the Fed, maka Anda harus langsung baca paragraf di bawah ini dengan seksama:

The Fed Has Failed, Failed, Failed

Bernanke knows QE3 will fail to revive the real economy, but he doesn’t care; his real job is to protect the Fed’s political power and the banking sector’s wealth.

The unleashing of QE3–unlimited money-printing in support of the financial Status Quo– is proof the Fed has failed, failed, failed. If anything the Fed has done in the past four years had actually had a positive consequence in the real economy, Bernanke would have identified that policy and expanded it in a measured response.

Instead he went all-in, emptying the Fed’s toolbox in one big dump: unlimited money-printing, unlimited propping of the mortgage market, unlimited support of low Treasury rates and three more years of zero-interest rate policy (ZIRP). Here is the translation of the Fed Chairman’s public comments: whatever. Did you see any of his testimony? It was painfully obvious that either 1) he was sky-high on Ibogaine or 2) he was just going through the motions, duly enunciating PR “cover” that he finds tiresome to repeat and impossible to say with any sincerity or conviction.

His body language and delivery said: “You think I believe this canned shuck and jive? Get real, chumps.”

Here is the key quote from his remarks:

“If people feel that their financial situation is better because their 401(k) looks better for whatever reason, or their house is worth more, they are more willing to go out and provide the demand.”

The key phrase here is “for whatever reason.” In other words, it doesn’t matter how artificial or phantom the increase in their assets may be, any increase is presumed to be good enough to trigger a “wealth effect” euphoria that generates a pressing urge to borrow and spend money.

It is clear Bernanke’s policies have failed to spark a “wealth effect,” even though the stock market has more than doubled from its March 2009 low.

The reason for this is self-evident: 93% of all stocks and bonds are owned by the top 10%. The bottom 90% feel little if any wealth effect from a new bubble in equities.

The other factor is the legitimacy of the rise in asset valuation. People have been burned twice in one decade by Fed-blown asset bubbles, and they can now discern the difference between an organic expansion of assets based on a healthy increase in demand driven by higher wages and productivity and a central-planning bubble based on shadow intervention and massive money-printing.

Are the Fed governors really so intellectually incontinent that they can’t recognize that the jig is up, and people now understand the difference between central planning manipulation and a legitimate Bull market? No, of course not.

Bernanke knows QE3 will fail, but he doesn’t really care. His job is to protect the Fed’s political power and the banking sector’s wealth. He is doing an excellent job at his “real” job while failing catastrophically at his PR job of reviving the real economy and employment.

It’s no secret that the Federal Reserve exists for one purpose–to protect the wealth and power of the banks. This can be illustrated by one question: does the Fed loan funds at 0% to households or communities? No. It loans “free money” at 0% to the banks so they can loan money to students at 7%.

When the banks get in trouble, the Fed rushes to loan them $29 trillion. When a student gets in financial trouble, he is hounded for the rest of his life by rapacious debt collectors.

Despite the transparency of its raison d’etre support of a neofeudal financial Aristocracy, the Fed presides in a nominal democracy and thus faces increasing political pressure as its public PR goals–maintaining stable prices, i.e. moderate inflation, and full employment–are clearly not being met.

The Fed thus needs to “manage perceptions” to maintain its facade of omnipotence and competence.

Thus Bernanke’s “all-in” bet has a political propaganda angle. As a student of the Great Depression, Bernanke is keenly aware of the conventional criticism (mostly wrong, it turns out) that the Fed “didn’t do enough” in the Depression.

Since it is clear that the economy is sliding into recession, Bernanke is going all-in now as a pre-emptive strike against any critics who might later claim he “didn’t do enough.” He knows that QE3 won’t boost incomes or jobs, but he launched it as a form of defensive policy against the inevitable criticism in 2013 that the Fed “didn’t do enough.”

Thanks to his defensive launch of QE3, he can shrug and sigh, “We did everything possible.” The blame will fall elsewhere, and the Fed will have a free hand to continue its real purpose, the defense of bank wealth.

That’s the plan, but the Fed is failing here, too. Tasked by the financial Aristocracy to stave off any political rebellion that might threaten their chokehold on the U.S. economy and machinery of governance, the Fed is fanning the flames of just such an insurrection by ramping up inflation even as median household incomes plummet.

Income, Poverty and Health Insurance Coverage in the United States: 2011 According to the Census Bureau, “In 2011, real median household income was 8.1 percent lower than in 2007.”

Meanwhile, back in the real world of debt-serfs and neofeudal Fed financial repression, the velocity of all that money the Fed is printing is falling to historic lows. Courtesy of our Chartist Friend from Pittsburgh, here is a chart from his knockout entry Forget The Fed And Follow The Money:

Courtesy of frequent contributor B.C., here is a chart correlating the cost of oil with the expansion of the monetary base. Surprise, surprise–the more money you print, the higher the price of oil and gasoline.

If there is one thing we can safely predict, it’s the stall speed of the U.S. economy is highly correlated to the price of oil in U.S. dollars. Push the price of oil much above $100/barrel and you will push the U.S. economy into a recession that will not respond to the feeble “wealth effect” felt by a dwindling share of U.S. households.

Did anyone on the Fed Board notice that retail investors have been fleeing the rigged U.S. stock market in droves? The number of people who actually believe their stock market “wealth” is not the ephemera of Fed fumes and proxy intervention is dwindling fast. The 3-card monte game is fooling fewer and fewer serfs.

If protecting bank wealth and power means jacking up inflation, pushing down wages and flying the U.S. into the box canyon of deep recession and higher unemployment, what do Ben and his Merry Band of Reverse Robin Hoods think the consequence will be politically and socially?

What Do the Charts Say?

Tyler Durden dari www.zerohedge.com kembali memberikan penjelasan terbaiknya mengenai dampak dari open-ended QE atau QE to infinity terhadap harga minyak mentah dan emas.  Artikel berikut, yang ditulisnya pada 14 September 2012, benar-benar membuka mata, dan menunjukkan dengan sangat jelas dampak dari ekspansi neraca the Fed pada nilai aset riil terhadap uang kertas yang dapat dan akan dicetak secara besar-besaran:

Yesterday, when we first presented our calculation of what the Fed’s balance sheet would look like through the end of 2013, some were confused why we assumed that the Fed would continue monetizing the long-end beyond the end of 2012. Simple: in its statement, the FOMC said that “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.” Therefore, the only question is by what point the labor market would have improved sufficiently to satisfy the Fed with its “improvement” (all else equal, which however – and here’s looking at you inflation – will not be). Conservatively, we assumed that it would take at the least until December 2014 for unemployment to cross the Fed’s “all clear threshold.” As it turns out we were optimistic. Bank of America’s Priya Misra has just released an analysis which is identical to ours in all other respects, except for when the latest QE version would end. BofA’s take: “We do not believe there will be “substantial” improvement in the labor market for the next 1.5-2 years and foresee the Fed buying Treasuries after the end of Operation Twist.” What does this mean for total Fed purchases? Again, simple. Add $1 trillion to the Zero Hedge total of $4TRN. In other words, Bank of America just predicted at least 2 years and change of constant monetization, which would send the Fed’s balance sheet to grand total of just over $5,000,000,000,000 as the Fed adds another $2.2 trillion MBS and Treasury notional to the current total of $2.8 trillion.

In other words, for once we actually were shockingly optimistic on the US economy. Assuming BofA is correct, and it probably is, this is how the Fed’s balance sheet will look like for the next 2 years:

Or, in terms of US GDP, the Fed’s balance sheet will have “LBOed” just shy of 30% of all US goods and services.

It gets worse:

Since the Fed is effectively becoming the marginal player in both the MBS and Treasury markets, a very relevant question is how much private market debt is left to sell. Short answer: not much. According to BofA’s calculation, the Fed will own more than 33% of the entire mortgage market by 2014.

That’s half the story.

On the Treasury side, in just over 2 years, “Fed ownership across the 6y-30y portion Treasury curve is likely to reach about 50% by end of 2013 and an average of 65% by end of 2014.” You read that right: in just over 2 years, the Federal Reserve will hold two thirds of the entire bond market with a maturity over 5 years (which by then will be part of the Fed’s ZIRP commitment, yield 0% and essentially be equivalent to cash).

No wonder that David Rosenberg is worried that the Fed will soon run out of securities to buy (well, there are always equities of course, but the Fed will not monetize those until some time in 2015 when hyperinflation is raging).

And speaking of hyperinflation (and our earlier note that nothing “else is equal”) the real question is if indeed the Fed will own $5 trillion in “assets” in 27.5 months, what does that mean for gold and crude? The answer is plotted below:

In case it is unclear, the answer is:

• $3350 gold
• $190 oil.

Luckily the Fed has already factored all these soaring input costs (and “alternative money” prices) in its models, and there is nothing to worry about. Lest we forget, the Fed can crush inflation cold in 15 minutes cold… somehow. Even when unwinding its balance sheet would mean sacrificing 30% of US GDP and, let’s be honest about it, civil war.

Saya tidak tahu harus menangis atau tertawa dengan 2 berita berikut (dari Tyler Durden di www.zerohedge.com).  Ya, lebih baik Anda baca sendiri untuk bisa merasakannya. Muak?  Heran?  Atau hanya tertegun oleh perilaku yang tidak masuk akal?

1) Poll Finds More Than Half Americans Take Out Loans To Buy iGadgets

Ahead of Wednesday’s mega-launch of the all-singing, all-dancing, all-happy-ending-providing (rumor) iPhone 5, the stunning reality is that a recent poll (via CouponCodes4U) found that 81% of consumers admitted they could not keep up with the latest and greatest from Apple – and worse still that 51% used credit to buy one of the must-have iDevices.

As The Street notes, the findings of the survey show “the crazy lengths people will go to be the first person to have the latest iPhone of iPad” and the pollster was “shocked and very surprised about how many Americans freely admit that they are willing to spend their way into debt by buying Apple gadgets that they simply cannot afford.”

2) Quote of the Day: QE3 Should Have Been “More Stronger”

A $4 trillion Fed balance sheet in 15 months (40% increase) and guess who is not happy. Yup, you got it.

From Bloomberg:

Nobel-prize winning economist Paul Krugman said that the third round of Federal Reserve asset purchases announced yesterday may be too small of a stimulus for the struggling U.S. economy.

The Princeton University economist, speaking at an event in Sao Paulo today, said that the Ben S. Bernanke’s pledge to buy $40 billion of mortgage debt a month could’ve included a commitment to maintain the asset purchase program for an extended period of time or until the unemployment rate falls to a targeted level.

“The change in tone is important but I would have liked a more stronger [sic] statement,” Krugman said. “It leaves things a bit unclear.”

When one hears such brilliance, what can one say but… Krugman.

Dibuat Tanggal 18 September 2012