Feb 292012
 February 29, 2012  Posted by at 3:01 pm Finance

EconGeneral04TAE has repeatedly made it clear from early 2011 that QE3 “money printing” would be anything but easy for the Fed to justify launching, and it looks like that thesis still remains firmly in play. The illusion of economic improvment in the U.S. due to its relative status against the backdrop of the crumbling Eurozone and its inaccurate/manipulated metrics continue to ironically destroy market confidence.

In Who Killed the Money Printer, I made the following observation:


I wouldn’t go so far as to say that some scale of QE3 has been “priced in”, but it is clear that the markets are now thoroughly addicted to credible promises of cheap, never-ending liquidity; or, as they would tell you in AA meetings, one sip is too much and one trillion sips are never enough. The problem for them now is that there is very little credibility left underlying the Fed’s “promises”, thanks to the complete joke of a jobs report produced by the incumbent politicians guiding the BLS.


With unemployment data suddenly showing massive improvement above expectations last month (and the non-manufacturing ISM reporting price increases across several commodities), the U.S. government has placed itself back in a position where there is simply no justification for any monetary easing. The Administration will continue to goose any and all economic data it can get its hands on going into elections, which will make it that much more difficult for the Fed to act, which, in turn, will make it very difficult for the market to keep up its appearances.



We could call it the mirror image of 2009-10, when all that mattered to the American political and financial elites was goosing the markets to manage perceptions of economic health and churn trading profits. As housing, jobs and manufacturing data naturally worsened (with exactly zero jobs created in August 2011, later revised slightly upwards) and the electioneering switch was flipped, the politicians have taken precedence over the bankers and are manipulating the source data with the belief that the markets will naturally play along.

Today we get yet another “goosed” data point for the U.S. economy, or what they would call “fine-tuned”, in the Q4 2011 GDP second revision. The first revision took it down from 3% to 2.8%, and now the second revision has taken back up to 3%. These variations may seem trivial and innocent enough, and perhaps they are for the average person analyzing economic data, but they are anything but trivial for the big money managers (a.k.a. dollar liquidity crack addicts) when taken in a broader context. Here is a graph of the second revision along with prior prints courtesy of ZeroHedge:



While this “fine-tuned” revision, along with the ECB’s second LTRO dump of some €530 billion (€311 billion net) onto banks, may be good for a few points on the major indices, it is clear that neither of them will come close to satsifying the markets’ primal thirst for taxpayer blood over the next few months. The second LTRO marks the end of a program that has already been revealed as a dud, generating nothing but unintended consequences, and the positive GDP revisions make it that much more likely that the Fed will be unable to launch another round of asset purchases before the U.S. elections are over in November. And that’s simply too long for the addicts to wait before their withdrawal is kicked up from first and second gears into third, fourth and fifth.

Home Forums Another Shot to the Bow of Fed Money Printing

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    TAE has repeatedly made it clear from early 2011 that QE3 “money printing” would be anything but easy for the Fed to justify launching, and it looks l
    [See the full post at: Another Shot to the Bow of Fed Money Printing]

    Golden Oxen

    Every central bank in the world printing like crazy. this article is nonsense. Read John Williams of Shadow Stats to see what these mad men are up too.


    GoldenOxen wrote: Every central bank in the world printing like crazy.

    Uh, no… false.

    Maybe that’s what you derived from Ben’s speech today, but your elemental friend Gold thought otherwise.


    Am I right in thinking that if the indicators are “good” for employment etc, the the Fed is barred from another QE?

    “the positive GDP revisions make it that much more likely that the Fed will be unable to launch another round of asset purchases before the U.S. elections are over in November.”

    And with out a good nudge the economy will sail down the drain? I guess it’s just hold your breath till after the electons. Then they will do any and everything to prop up the econ.

    Golden Oxen

    Might I suggest you broaden your time horizon a bit Ashvin. Some of us are playing this thing for our long term survival, not day trading. Print they always have and print they always will, no matter what the banter they throw out to the cannon fodder. You should know better. Take a look at a long term chart of the gold price from 2000 BC until today and it will certainly clear up the matter for you.


    Golden Oxen,

    At what point in this commentary did I say anything about long-term prospects for gold or money printing? See the part Glennda quoted above. Granted, it wasn’t the best way to word it, but still easy enough to understand. Maybe, next time, you read the actual words written in a piece before calling it “nonsense”? Thanks.

    Golden Oxen

    I was referring to your comment about my elemental friend’s reaction to the fed speak of the day having any predictive value as to their future printing activities. My choice of the word nonsense previously was unfortunate; and I apologize for it’s unintended consequence. I am obviously a gold bug that has had a bad day.

    Ken Barrows

    I’d like an article detailing how the Fed’s policy is stealing from the taxpayer. Maybe it’s obvious and I am missing, but it seems the main way to ripoff the citizenry in central bank policy is inflation. Otherwise, it’s the US government borrowing from the future and monetary policy sopping up the bonds. Thanks, TAE. Logging on after reading for a couple of years.


    Since the US Goverments options were run down to zero by succesive admininstrations digging a deep financial hole the taxpayers can never hope to climb out of, I personally believe this repeated money printing is a deliberate strategy to deflate the real value of the foreign debt.
    There will be a great deal of pain suffered as the cost of imports (notably oil) rise, but the amounts to be repaid will lowered against real purchasing power. A “least worst” option if I ever saw one.


    The ECB’s LTRO was a fine example of money printing – if we assume the 3 year duration can and will be rolled over indefinitely into the future. 700 billion dollars being swapped for crappy bank assets isn’t quite as satisfying as if the ECB ran out and bought them outright, but as long as there is no outright default of the swapped items, the ECB can continue this game forever. And currently the ECB seems to be quite good at avoiding the impact of defaults on its own balance sheet. Houdini would be proud.

    The market is a funny beast. We can all make guesses that “gold is saying this or that” – is gold saying today “the Fed can’t print money”? Or is it saying assumptions about imminent Fed money printing were built into 1790 gold, and Bernanke let some air out of that tire? Or did some large player sell a bunch of paper gold at a strategic moment into a modestly overbought gold market? Or had the market bid up gold $250 in the past 2 months expecting a trillion euros of LTRO, and when they only got half a trillion, a bunch of the bids for gold vanished? How about all of it at once?

    It is curious that the equity markets (an awesome liquidity detector) gave Bernanke’s testimony a big ho-hum. And oil bounced back handily, as if nothing had happened. These things suggest to me its a complicated environment, not subject to a simple explanation.

    But who really knows for sure. Certainly, I think Ash is right that there are serious political limitations on Fed money printing. However I also think that if markets turn south, a great chorus will arise for Papa Fed to wheel out yet another injection to save the markets once again from lower prices.

    Since 2010 we haven’t had a real test of these limitations. Things still appear normal. If the equity market corrects 20% and no money printing occurs, then we can say pretty definitively that those political limitations have real teeth. Until then, I believe it is one of those “known unknowns.”


    I watched the entire hearing of Ben Bernanke yesterday and IMHO have to say that the man is not in any way intellectually impaired.

    He seems to genuinly care for the economy of the USA, the problems today and also the problems that will come.

    For example when discussing the “fiscal cliff” as he called january 1st 2013 with tax increases and some programs taken away he came across very sincere and caring when he tried to get the congressmen/women to understand that they should try to think about the timing. I hope the politicians listened.

    Another example when he talked about medicare etc I believe his warning of risks to the USD and the confidence from foreign investments/lenders was spot on.

    He also recognized the Student Loan bubble in the US and gave me as a Swedish citizen renewed faith in the system we have here when he went personal and told the hearing that his son would have $400k in student loan when he finished medical school. In sweden the same student would have about $70k in loan payable through to 65 years of age. With an interest rate of right now at 1,5%. And the fact that his son will have student loans gave me an insight in what kind of a father he might be and what he truly believes.

    Ben did not seem to be the “Devil” as I’ve read in countless forums/bloggs.

    The central bankers have a plan with all of this, thats for sure. But I’m not one to try to figure out what the plan might be. As I see it there is only two things I am truly responsible for in this life and that is my own life and the life of my family. So instead of trying to figure out what will come in the future I act now, knowing that what ever happens my family will have a foundation to reach/build from in the future.

    As Nicole said in an interview: Take care of your house first. Its when you’ve taken care of what matters to you most that you can reach out to others.

    Something I’ve taken to heart, the trust horizon starts with trust. Trust in yourself and your capabilities/skills.


    About the moneyprinting from the CB’s.

    Our own Riksbank (Oldest central bank in the world), did some of these loans in the middle of the chaos back in 2008/2009.

    They lent out about 10% of our GDP. A huge amount of money with almost no interest. These loans were also like the LTRO short/medium term, 1 or perhaps 2 year loans. Just as the LTRO the loans helped out with liquidity during a time when all H*ll was loose.

    These loans were paid back in full. And the inflationary effects were sterilized.

    Something to think about. And aswell the fact that the Deposit Facility at ECB has been at or around 500 billion Euro from the LTRO 1 almost the entire time. Something I except will be the case with the LTRO 2 money aswell. So the velocity of the money being lent seems very very low as almost all of them go back to ECB’s deposit facilities.

    I’m wondering what kind of inflationary effects money parked in accounts at the CB’s have. I’m betting close to 0, but perhaps someone more familiar in these matters might explain it better?


    SwoOosch post=778 wrote: I’m wondering what kind of inflationary effects money parked in accounts at the CB’s have. I’m betting close to 0, but perhaps someone more familiar in these matters might explain it better?

    You’re right, there is no inflationary effect unless the money suddenly comes rushing out of the deposit facilities and into the speculative “risk asset” casino markets (including long-term peripheral sovereign bonds) and/or the real economy for whatever reason. That is an unlikely occurrence in this environment.

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