BernankeThe Fed is F*CKED.
Almost no media that I’m aware of, mainstream or otherwise, has reported what I’m about to tell you.  So, listen up.  I’m going to give you spin before it’s spun.

Silver Buffs Generic Add2

By SD Contributor Eric Dubin

Six months from now, or sooner, we will start hearing about the latest bullsh*t exit strategy brought to us by the Federal Reserve.  It will involve the brilliant idea of securitizing the “assets” on the Fed’s balance sheet and selling them off into the public markets.  It will require packages sold at a discount because much of the stuff that’s marked-to-make-believe now on the Fed’s balance sheet (other than the Treasuries) will be offered to real investors and not governments with printing presses.  Real investors, for the most part, demand satisfactory risk/reward — thus the discounted offerings. 

But guess what?  With that extra crap flowing to the public market, it will crowd-out existing ongoing debt offerings which are already having a hard time being sold at current interest rates.  Thus, instead of the Fed claiming victory by not having the velocity of money go bonkers since sequestered “money” on their balance sheet is “sterilized” by “honest” purchases by new investors locking up the funds, in reality, interest rates will shoot higher because:

a) they have to move higher to improve the risk/reward of all credit offerings from the Fed or new stuff;

b) crowding out raises interest rates generically because there’s more competition for real buyers given the larger supply of paper up for sale, thus demanding higher rates to entice enough “real” investors to take on the massive supply.

So, the Fed will try to extricate itself from balance sheet purgatory and blow off its face as 300+ basis point higher long rates manifest across all credit, sending the economy into the tank.  Heck, having real investors hold all that paper vs. sequestered on the Fed’s balance sheet doesn’t even give the Fed the benefit of velocity of money staying dormant because the real investors will use the paper they buy as collateral for even more investing, which is part of the mechanics of the so-called shadow banking systems’ expansion of the money supply (and thus, velocity will start to rise).

Bottom-line:  The Fed is F*CKED.

At this point, we’d be better off with a goldfish as the Fed Chair.



  1. I`d like to believe this is true, but I`m not sure. The Fed and Wall Street are the MOST powerful people and orginzations to EVER inhabit the earth. Money (and debt) creates power.
    The only weak spot they may have overloked, is that they need us.  And we may be a little more powerfull than they estimate.
    Stay tuned.

    • @Silver Dollar:  ….and they need “us” (the private sector and other countries) to at least buy some of the US Treasury mountain and other debt.  You’re right to point out they’re the most powerful people and organizations in the world.  But you’re also ironically right to point out that they need “us,” and one of the ways that need gets translated into object reality is the fact that even those most powerful at the top can’t exist in a world where 70% to 100% of debt is monetized forever.  That’s impossible.  But thus far, that’s actually public policy by default.  Regardless of their power, they’re not powerful enough to keep interest rates down forever.  They’ve been playing a game of getting some of that debt off-loaded and that’s getting harder and harder to do (see my comments to Pat below).  So, you’re actually more right than you might have even been thinking about in an ironic sort of way.  Damn straight they need “us.”  But oligarchies are known for hubris.

  2. I’m a little mystified as to what force is compelling the FED to off-load these mortgages and such? Granted, they’re not performing (which is why they have them in the FIRST place, to ‘rescue’ Fannie & Freddy), but what’s ‘pulling the trigger’?

    • @PatFields:  It’s the same forces that made Uncle Ben freak-out and start talking about QE tapering even as little as a month following an announcement of more QE in December.  It’s the same forces that brought about the latest public relations disaster surrounding the last FOMC meeting and subsequent press conference and flip-flop jawboning in the days that followed.  It’s contradictory behavior in reaction to the inevitability of an erosion of confidence about a balance sheet moving to $4 trillion and beyond in the not too distant future.  That big number is starting to reawaken the bond vigilantes, and Uncle Ben is visibly trying these public relations management strategies in an effort to tapper bond market expectations.  Most on Wall Street are dumb enough to fall for an announcement of MBS securitization sales and interpret that announced program (not that the program would work!) as a “good thing” and therefore, put the bond vigilantes to sleep for a few months. 

      Ultimately, the program will not work and the alternative “exit strategy” of leaving the MBS on the balance sheet until expiration is what I believe will be the fate of most of that paper.  But for the near-term, especially since Uncle Ben appears to have been given the boot, he’s super motivated to try to tame the fear of bond vigilantes.  This is pretty much going to be a PR stunt if they elect to pull it off.  Some MBS might get packaged and sold, but it’ll be a small portion of the pile overall. Remember the TIC report for the first quarter?  It showed a huge change in foreign purchase of US Treasuries.  That was the first shot across the bow warning of the return of the bond vigilantes.

    • This is one force where rule of law isn’t the prime moderator, and its power has been dormant for the last few years because the deflation scare convinced enough bond market players to dogpile on the falling rates trade.  That trade is OVER.  The powers that be have done a good job figuring out how to screw-up just about everything.  But they can’t turn off the forces of the credit market forever. 

      “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

      James Carville, political advisor to President Clinton, Bloomberg [8]

  3. I believe the usa gov could go bankrupted an the huge banks taking control. Thinking 85 billion each month times 10 injected into the major banks for all this time. They could actually buy off the national debt now if wanted. Why they don’t lend to the American people tells the true story how corrupt the whole system is.

  4. Agreed Wombat, however Fed could easily change the accounting rules and allow its securities to be valued at par by those institutions willing(or forced) to play along.  Thus they would not need to discount them.

    • Changing the accounting rules on MBS when it was held in the banks and then bought by the Fed is one thing.  But selling them back to the private sector would require forced purchases in mass if the MBS wasn’t priced at market.  Further socializing the system by forced sales to pension funds might work on a small to medium scale.  But it would backfire once we’re talking about 100s of billions of dollars of paper because “unintended consequences” growing out of that level of massive capital misallocation would be almost certain to manifest.  This is one of the other factors behind why I think any such exit strategy PR stunt would be short-term in nature.

    • Considering that virtually everything the Fed does is slight-of-hand at its best, the Fed could work a deal to sell at the “market value” of those MBSs and then have a kick-back via special tax consideration to make the true value more like 50% of their book value.  Playing both ends against the middle is typical of TPTB and they are good at it.  This would be similar to the Wells Fargo purchase of Wachovia for $15B while raking in a $25B tax break.
      As to the “bond vigilantes”, they have been very effectively muzzled by the Fed’s willingness to buy LARGE amounts of UST bonds at whatever the offering price was at the time.  This prevented the bond vigilantes from exerting their usual pressure on the Gov and either forcing interest rates higher or having a failed offering.  With Uncle Ben buying ALL of the bonds not sold during the offering, there was no pressure for higher rates.  Unfortunately for the Fed, they cannot do this forever.  At some point, the bond vigilantes, who are nothing if not patient, WILL exert their influence and rates will be forced up.  When this happens, and it appears as if it has already started, it will be tough noogie for both the Fed and the Gov.  How much of the US federal budget can be absorbed by interest payments before the wheels come off of this cart?  This is being tested in Japan as we speak.

    • @jiggysmb:  That will only happen in the short-term, if at all.  What maters to precious metals are REAL interest rates, not nominal interest rates, along with overall systemic stability (which stinks, and will come under even greater strain as higher interest rates explode deficits and serve as a massive break to economic growth).  PMs will rise over the majority of the period rates rise.  This is exactly what happened during the 1970s-1981 PM bull market.  The PM market peaked only after rates moved into the mid to high teens.  We are so far from that level of real interest rate competition killing PM demand that it’s comical.

    • Here is how I look at this.  The so-called pundits on financial TV keep bringing up the idea that rising interest rates hurt gold.  That is true of paper gold, such as GLD, but not necessarily of REAL gold.  OK, so the UST 10-yr bond is paying around 2.7% interest these days.  Not bad considering where it was a year ago but small spuds compared to the 400-600% moves that happen in gold bull markets.  I feel VERY secure holding gold and silver for the long term.  I do not feel secure holding fiat currency, UST bonds, or any other bonds for the long term.  OK, add money in the bank to that mess as well.  lol

    • @flying_wombat. I Agree but higher rates will mark the bottom in pms that everyone has been waiting on. I’m just scared to see how low that will be and how long we will be there waiting this out. Maybe then we will start to see some moves up.

  5. I think Eric is exactly right here.  Interest rates MUST rise.  This can’t continue.  Permanent  QE must be a part of this equation.  The govt. Sequester is over a matter of 45 billion dollars of savings.  We are furloughing govt. employees over  2 weeks worth of money printing by the fed (85 billion a month).  If stopping 2 weeks worth of debt purchases is causing govt. shutdowns, what would 52 weeks worth do?

  6. The Fed is never going to sell those assets into the market, I though the Fed even stated that very recently.
    They don’t ever have to sell those assets, just keep them on the balance sheets, cancel it down the road.

  7. There is no way the Fed is offloading any of the trillion plus inventory on their balance sheet.  Never ever.  They will never dump them.  There is no reason they should. They have no need to and they have no rules that say they must dump their mark to unicorn assets.

  8. time and tides are immutable, wait for no man and are about the only certainty in life.
    The acts of man are just specks along the course of this existence.  
    Buck FRNanke. 
    He won’t be able to stop this.  It will be even more unstoppable given that every country on this globe is going down the same road.  None will survive but all will try. And no nation will cooperate with another when perceived national survival is at stake, particularly when their survival depends on taking another country down
    .  It’ll be ‘man the life boat’  ‘every man for himself’  And since the US is the biggest life boat and as  the worst offender of them all, this country will be thrown under the bus.  It  will be seen first as the  best safe harbor until the time comes to thrown the captain of the USS Neversail into the drink.
    Got lifejacket? Ben   You’ll need it.
    Remember the Drowing Man rule.  never rescue a drowning man unless you can remain safe yourself.  Otherwise he will drag you down with him.

    • AGXIIK, 
      Since there is currently no award for World’s Best Combined Spoonerism/Acronym, here is a big +1 instead for
      Buck FRNanke!

    • I’m very confident that as FRNanke  ‘plays out the string’ here in 2013 the frame work is already being put in place to completely throw him under the bus in 2014.  Just wait. In the not too distant future the FRNnake is going to be portrayed as the biggest buffoon-bumbler EVER…..Just watch…Its all going to be HIS fault…EVERYTHING!

    • @Silver Dollar:  That’s a really interesting point.  Thanks.  I’ve never seen or heard any discussion about what happens to the percentage of defaulted mortgages hiding within securitized MBS packages on the Fed’s balance sheet when and if a county level tax authority comes calling for money.   We know what happens when a regular bank holds a mortgage that isn’t being paid and is in default.  The bank is on the hook for the taxes.  Right?  Well, what’s going on with those properties that the Fed holds?  Is the Fed paying these taxes?  I don’t know.  Anyone know?

    • It’s more like see “which” (plural), not “what” (single event) – and therefore, it remains a cop-out that you don’t name what you’re talking about.  A simple two to three sentence message like this is good enough. 

      Go on record and/or educate.

    • Ranger, there are so many events, which one to give to this important record of opinions? We don’t need no education or thought control. Hey, all hell is getting ready to break loose, or maybe the world is getting ready for another Renaissance, TPTB are going to give the sheep a debt jubilee, and buy us all a bottle of our favorite Chablis. Think I will stay with all hell breaking loose, it seems to be the logical thing to do. 

  9. Listen to the Hunter/Roberts interview that recently posted. The Fed and Washington have more power than you can possibly imagine and might be able to prolong this system for many years(including the suppression of pm prices) We simply don’t know and conventional wisdom is out the window. Those of us that thought this corrupt system was on it’s final months of existence and hopeing for some type of reset(with a pm based solution) are almost all in doubt now. Not doubting the eventual bad  outcome, but definitely in doubt of the timing based on previous optimism. I personally believe now that the bad guys are in total control of the system worldwide and can/will do what they want until it suits them to do something else. The idea that another 2008 meltdown is imminent here in the US is not realistic. Crap- Greece was supposed to implode 6months ago with bank failures and contagion spreading to EU and US banks triggering derivatives …..blah blah blah. Didn’t happen. Now we are seeing articles about Italy soon to be needing a bailout. Time was, the gurus were saying Italy was too big to bail out-now it can be done. Cheers.

    • In a new world order that defines “debt” as “assets”, fiat money as the economic “lubricant”, and a press that is own and operated by the propagandists in power, there is no collapse. There is just personal tragedy, after personal tragedy, after personal tragedy that no one hears about. The system keeps on running, grinding individuals with principles and morals into the ground and benefiting those that are amoral. It is truly the “double speak” world of Orwell’s “1984” only with an economic twist instead of the “endless war” angle.
      It is the definition of hell.
      “Welcome. Would you like a Pina Colada?”

    • ” It is truly the “double speak” world of Orwell’s “1984″ only with an economic twist instead of the “endless war” angle.”
      Actually, we can do and are doing both.  War is raging in the Middle East and the world today looks a LOT like the novel 1984, only on steroids.
      “The idea that another 2008 meltdown is imminent here in the US is not realistic.”
      Yes, it is realistic.  Nothing has changed very much since 2008.  We have huge structural problems in the US economy and there has been zero fix applied to the fundamental structure of the economy.  All that they have done is plaster over the cracks in the walls, ceilings, and foundation.  It looks decent but is not.
      Greece is on life support via massive infusions of billions of euros.  Their unemployment is at 1930s depression levels.  Their economy, what there was of it, has collapsed.  There is no way in hell that they can repay their debts, yet the EU continues to string them along, bleeding them dry of every minuscule bit of any wealth remaining in the country.
      Italy has announced that they cannot pay their bills this year.  If that is not default, WTF is?  The interest rate swaps should be falling flat on their ass as we speak, triggering massive worldwide derivative losses, and would be except that those in power choose to play semantic games that are preventing immediate recognized insolvency.  That they can do this is pretty amazing.  Does hitting your thumb with a hammer hurt?  No problem.  Just redefine pain as pleasure and all is good.
      None of the economic fundamentals out there look at all good.  That is reality.  All else is smoke and mirrors.  Yes, I do give credit where credit is due and this is one helluva good song and dance routine but it is not successful economics.

    • Bradford
      “I personally believe now that the bad guys are in total control of the system worldwide and can/will do what they want until it suits them to do something else. The idea that another 2008 meltdown is imminent here in the US is not realistic”

      If the elites are in such tight control, then how could the 2008 event have transpired? Such is the ‘power’ of image.

  10. “Letter from Obama asking to swap dollars for IMF notes “backed by….gold.” in case you thought gold was dead.”
    -Jim Rickards “Tweet”
    You should read this. I am skeptical about this article allegedly written by the President. One major reason it is NOT on an Official White House Letterhead. You make of this as you will. Any comments please feel free. Again skeptical about this write up. 

    • It’s a real letter from Obama.  It’s sitting on the website with his name on it so even if some underling actually wrote it for him, who cares?  It’s meant to represent him speaking and his signature is at the bottom.  So, it’s real.  The content also matches what was going on in 2009, when a formal request to expand the IMF’s cash was made.
      Where the skepticism comes into play is just how much we can safely read into this regarding future gold policy.
      Thanks NetRanger — off to read the thing…


    Ben Bernanke Drunk at Bar (Son disowns him)
    This is on youtube, I remember seeing him in the past in a bar stating how screwed we Americans are because the system he (Ben Bernanke) runs is going to fail. 
    It was removed, but others kept the link but watered it down 

    Please have necessary stuff to sustain life.


  13. SLG, I wish I could be as optimistic about the economy and our banking sector but if the Fed starts tapering-kaboom interest rates skyrocket and the IR swap derivatives  holders start systematically crashing, we are in for a world of hurt. The words “bank holiday” and “bail in” become common household words and the world dumps paper investments for hard assets like gold, silver, arable land and energy. Sorry, I will take the manipulations with stride, knowing the whole system could come crashing down over a long weekend…

  14. If you realize this world is schlugged as I had back in 1998, the steps to rise above the carnage is contained in the Canons and decrees of the Council of Trent. Other than that, if an opposition party is not prevalent as a majority in either the US Senate or US House after the 2014 midterm election, they will roll out Acts and rules and EO’s that will finish us off, if Planet X or a pole shift does not. Meanwhile, check out these academic papers, hot off the press guidelines for the initiated collateral damage to be.
    Crunch Time: Fiscal Crises and the Role of Monetary Policy
    The Federal Reserve’s Balance Sheet and Earnings: A primer and projections
    Maintaining Central-Bank Solvency under New-Style Central Banking

    • @Thomas – seriously interesting stuff, thanks.  I’ll read them over the next few days.  I’m a total geek and I love discussion papers like these.   REAL conspiracy researchers and alternative history experts spend countless hours looking over source documents and public policy discussion documents like these to build context maps on the intentions of the oligarchy — while amateurs play with comic books 😉
      Why the Council of Trent?  Are you making the inference that the Protestant Reformation was problematic?  I’m not sure I get what you mean. 

  15. Yes, very interesting analysis from here:
    The concepts of Ben and especially Volcker and Greenspan, are essentially from the new branch of mathematics, Financial Mathematics. This field brought about by the BlackScholes–Merton model in the early 1970’s, is the reason for our current situations. From LBO’s to HFT to Quants, this field, so new, so powerful, has my attention. In fact, I intend to buy a single license for MATLAB to supplement my home studies. It is and always will be numbers that govern our universe brought about through Grace which has been corrupted by both Preternatural and Supernatural creatures. Numbers do not lie, they and we do.
    I am very interested in my new devotion to abstract science. The Fed Case Study offers clues and is most worthy of analysis by non-comic book readers. In fact, I am planning to buy my single user license for MATLAB for Christmas. I think we have come to know and recognize the calling cards of tptb. I am of the persuasion that their machinations did not start in America. Their evil plans can be seen in Europe back in the day. In fact, Fr Martin Luther nailed his 95 theses on the door as a one man protest of the direction of the Church, only to see his ideas hijacked when he died. If he only knew some history. Any human RUN institution is rife with corruption. Europe, all of it, was Catholic when Fr Luther died in 1546. I would think his observations which led him to take large liberties against the essential mission and purpose of the Church, would die with him. Fr Luther’s ideas and German translation of the Vulgate should have died with him, however, many, MANY took his protest much further. Some were inspired for the money, many were bought and sold for the destruction of the Church by tptb. The Church responded with the Council of Trent. This council ran from 1545 to 1563. The KJV bible was printed in 1611 despite, or more aptly, to spite their work. I chose the Council for the promulgations put down on paper, the oral and written Traditions actually put on paper, condensed, for all posterity, the Gospel of Christ without ambiguity, without guile, without ulterior motives. It was and is a learned, concise, inspired defense of the Divine Institution which His Apostles preached encapsulating what the Good News is. While no human work can contain 8 thousand years of revelations, this work does get to brass tacks and offers a worthy description of the mile markers in our journey.

  16. Ed. I know 3 couples in their 50’s in our neighborhood that just sold homes in the 200-375K range and bought new townhouses in a booming new golf course subdivision a few miles away. They are living life as they always have, working, going out to eat, vacationing, etc. Developers are starting to build like crazy again where I live and the restaurants are packed on weekends and many week day nites as well. Point is, I’m starting to wonder if we on blogs like this aren’t the ones that are in the dark about what’s going on in our economy? What are the prognosticators claiming here? Do they believe that some type collapse/reset is imminent(Pastor Lindsey says 2014 based on feedback from his supposed contacts) or are they simply coming up with these redundant horror stories to sell their news letters? I know things are bad by the statistical reports but look how long Detroit has held on with half it’s tax base gone. My point here is, We could be having these same conversations 10 years from now. Kinda like arguing when Jesus Christ is coming back-we know it’s going to happen but you don’t schedule your week thinking that it will happen this coming Sunday.

  17. @flying-wombat and everyone else i guess…
    What will happen at the FOMC minutes and “bernanke speaks” tomorrow? Theories? Another smash conveniently taking us through the  $1185 gold line in the sand? Attempt to break $17 silver?
    I’m wondering whether to get short silver and gold tomorrow in order to potentially recoup some losses. Will they go for another round of bashing or have they exhausted the short selling this swing around and attempt to flush some out with a spike up?
    Regarding the bond market… One of the ways to kick the can a bit further down the road would be to let some market negative statements out tomorrow, bring down the S&P500 a bit in order to scare that money into bonds. It would buy them some time.

    The Muppets where just stopped out. EURUSD tumbling through 1.28

    • @widget

      It seems the “jawboning” cycle is now mostly in “dove mode” given the hysteria that followed the last FOMC meeting and press conference. It’s really a guessing game at this point, but I think the probabilities that Uncle Ben and his merry band will be on good behavior for the time being and not interested in bashing the bond market too much and pushing up interest rates still further by tapper trash talk.

      You’re absolutely right to point out the can kicking value of scaring equity investors with more deflation talk and a dovish tone. But they’ll probably just go with a generic dovish theme overall, meaning that they’ll play nice with multiple markets, not talking up the tapering theme, which would be positive for equities and also have the ability to lower interest rates as speculators factor in more direct bond purchases by the Fed.

      The Fed is scared and that’s why they’ve started the tapper talk — the bond vigilante is no longer on the back of milk cartons, missing. He’s be found and he’s grumpy.

    • We’ve got a number of the merry band out making public apperance this week too.  From Barron’s econ calendar:

      Friday:  Federal Reserve Bank Presidents of Philadelphia, Charles Plosser, and St. Louis, James Bullard, on panel discussing economic outlook in Jackson Hole, Wyoming.

      Friday:  San Francisco Federal Reserve Bank President John Williams speech on moderation in monetary policy, in Vancouver, British Colombia.

    • @flying-wombat
      The trillion dollar question is if gold/silver will be smashed anyhow like we have seen many times before on neutral or even bullish news, like during the last hearing (and FOMC minutes release I think).
      Do the minutes go through some kind of post-editing and changed for PR purposes? Otherwise what was said was said already 3 weeks ago is my point. I’m not looking forwards to this “interesting evening” 🙁

    • @flying-wombat

      Normally I think the PM enemies would take this opportunity to smash the prices, especially with gold close to breaking $1260-1270 and silver close to $20. What “bothers” me is the big drop in volume since the June 30 snap-back. Could it be a sign that they have backed off from this relentless bashing that has been going on since october?

  18. @widget:  By volume, I assume you mean open interest on COMEX.  Yes?  Well, one of the interesting things that’s been going on since October is that generally, the silver open interest has been rising into the decline while gold open interest has been falling (the latter being the more normal pattern one would expect).  There has been a brief period with silver open interest finally declining a bit recently, but it’s still a mixed picture and I don’t feel confident making any grand interpretations given the mixed signals seen with the raw data.  The picture shown by COT reports, on the other hand, is clearly showing the bullion banks going net long and that’s a strong indication we’re far closer to the end of the overall decline than not.
    I’m not as worried as you about this 2pm FOMC minutes release.  The big market scare in June mostly came from what Uncle Ben said in the follow-up press conference where he took direct questions.  We’ll see soon enough.  The release is scheduled for 2pm EST today.

    • @flying-wombat
      With the daily close behind us I think we would not be hard pressed to say that the release and Bernank appearance did not have at least a little impact 🙂 First a spike higher, than a full reversal and subsequently another spike.
      The minutes was self-contradictory to say the least as for the number of members holding which opinion and to which extent, but I think the general take-away was that the FOMC publicly aims to stop tapering “soonish”.
      However, the real move came in the Q&A part of Bernanke’s appearance when he said that the fed would be accommodating by keeping interest rates low until the economy starts to improve and hinted that inflation was too low which could potentially lead to new measures if it did not close in on 2% without help. This also contradicts the whole tapering meme, because how on earth is the fed going to fix the interest at a low level without buying continuing to purchase bonds if there are no other predominant buyers? Is he in denial or was this an attempt to calm the markets? It appeared to be a pretty spontaneous comment, not planned.
      The most ironic moment was when bernanke said that “I don’t know if you have been following the dollar, but it has not been weakening lately” apparently unaware that he lowered it by 50 pips by his “accommodating” statement only a few minutes earlier.
      Looks as if I ended up on the wrong side of the trade again 🙁 but we’ll know after Asian trading and london open tomorrow for sure…
      Perhaps the lid is finally off.

Leave a Reply