The Doc: The Taper Talk delivered the final blow to the big US banks, insolvent at the time. Now they are struggling with liquidity problems
as a result of massive derivative losses that sap and drain their
precious capital. The rise in bond yields caused tremendous damage. The Financial Regulatory Bill (aka Dodd-Frank Bill) will be suspended,
just like the suspended FASB Rules on accounting practices in April
2009. The big US banks are to become bigger uglier darker zombies, more
desperate too. The resistance to liquidate remains firm and steadfast
with the utmost urgency and resistance.
The ongoing endless perpetual ZIRP & QE is their legacy, which has placed a noose around the neck of the nation. Systemic failure, dead ahead!! The
Gold Trade Standard will rise from the ashes of the wrecked USTreasury
Bond bubble, the greatest grandest beast in asset bubble history. By Jim Willie: Janet Yellen appeared before the Senate Banking Committee on the approval process, more a production than a process.
The veteran economist and banker was given respectful treatment. The good Senators do not wish to be subjected to smear campaigns (see Menendez of New Jersey) or to have their banker donations cut off, better described as relentless bribery toward policy control. After all, Wall Street firms wrote the Financial Regulatory Bill. She will be confirmed for the US Federal Reserve Chair post with some minor heckling by the Senators. Expect Corker (Tennessee), Vitter (Louisiana), and Rand Paul (Kentucky) to pitch in some salty commentary. Yellen fits the job description as an insider, with ample experience inside the Federal Reserve Board and the Council of Economic Advisors, with the correct tribal pedigree. She has carefully scripted her own commentary, with some tacit comprehension of the impossible task of fostering a strong enough economy to sustain itself toward spinning off adequate job growth. Yellen will continue the Zero Interest Rate Policy Forever and a day, since raising rates would kill the economic structure and financial lattice work. Yellen will continue the QE to Infinity, since interrupting the liquidity spigot would force a sudden collapse of the entire sovereign bond Ponzi Scheme, otherwise called the USTreasury Bond complex with its supporting Interest Rate Swap derivative flying buttresses, managed by the Exchange Stabilization Fund and the JPMorgan Chief Investment Office. Yellen has some blind spots, or else she sings the party line well. Expect continuity in monetary policy and the march toward a fascist state led by the financial elite helm, the criminal banker syndicate. She has an impressive record, despite being a Keynesian hack economist and purveyor of heretic doctrine at Univ California at Berkeley
YELLEN THE REBEL, NOW BAGHOLDER
Some true irony must be cited as preface. To her credit, Yellen confronted Greenspan in 1996, opposing his policy that led to widespread irrational exuberrance. She pushed for for pre-emptive rate rises to choke inflation and wean the economy off cheap credit. She was correct, but was overruled by Mr Magoo, the knighted Sir Alan admiral heading toward the iceberg, whose other clandestine employers were the Queen of England and the Bank For Intl Settlements. After the Yellen warnings, the Greenspan Fed then began to make a series of fatal errors, leading to the 2000 tech telecom bubble and bust, followed by the housing & mortgage bubble and bust, both under the supposedly brilliant Greenspan helm. He was a bubble puffer and wrecking ball, deemed brilliant for his obfuscation and calm hand during the crises he himself created. He mesmerized the audience with his erudite babble. The US nation became addicted to ever lower real interest rates. Nobody called Yellen a dove in the 1990 decade. She is a dove by requirement now, since the system is broken and fully dependent on an even more massive torrent of free money. She is forbidden to terminate or shut the backdoor bailout of Wall Street banks, otherwise called Quantitative Easing.
A decade later, Yellen went on to oppose New York Fed chief William Dudley in December 2007 over the risks of subprime mortgage defaults. Thus she confronted the Goldman Sachs machine (Dudley from GSax), again slapped down. Yellen is on record as being on the opposing side of the table during those crucial months before the subprime housing crash. She tried to alert the Board toward the danger of a chain reaction through the shadow banking system. Ben Bernanke and the FOMC majority scoffed at her firmly stated admonitions that the subprime debacle was the tip of an iceberg. The eloquent Bernanke was wrong at the top of his voice, since the subprime debacle was to show itself, precisely as Yellen forewarned. They over-ruled her prudent wisdom. Yellen said, “I feel the presence of a 600-pound gorilla in the room, and that is the housing sector. The risk for further significant deterioration, with house prices falling and mortgage delinquencies rising, causes me appreciable angst.” The warning was given in June 2007, a full 15 months before the storm reached climax, but just prior to major mortgage cracks being revealed. During that time the Jackass was also making even more dire warnings. The Jackass warned of a chain reaction that would render the US banking system insolvent as a result of the busted housing bubble, which indeed happened. Bernanke went on to disprove his own PhD Economics thesis, since amplified liquidity does not treat successfully the prevalent insolvency after all, and the redemption of toxic bonds with the high volume liquidity does not set the economy on track for recovery after all. Revoke his Doctorate degree!
In the clash with Dudley directly, Yellen told him in no uncertain terms that he was supposed to be the official with his finger on the market pulse, the watchdog. She said, “The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real. At the time of our last meeting, I held out hope that the financial turmoil would gradually ebb and the economy might escape without serious damage. Subsequent developments have severely shaken that belief.” She was absolutely correct again, and regarded as insolent. The USEconomy was already in recession by then. As footnote, Robert Hetzel of the Richmond Fed wrote a powerful book entitled “The Great Recession” which accused the USFed itself of being the chief cause of the financial disaster that reached climax in 2008. He cited a far too tight FOMC which let the M2 money supply implode in early 2008. The disasters at Lehman, AIG, and Fannie Mae followed. So deep irony exists. The great financial bust might have been orchestrated.
Janet Yellen will take over at the US Federal Reserve after the damage is done, after the ZIRP is stuck in place forever, after the QE is stuck in place to infinity. No policy options exist anymore for Yellen to use, except to continue 0% and to continue bond monetization. They will cover the majority of USTreasury Bonds both in new issuance and in rollover, with well hidden monetization (sweet deal redemption) of wrecked toxic mortgage bonds held by Wall Street firms. Furthermore, they will continue the deeply hidden coverage of Interest Rate Swap contract derivative losses, which are already stacking up into the $trillions. The Taper Talk delivered the final blow to the big US banks, insolvent at the time. Now they are struggling with liquidity problems as a result of massive derivative losses that sap and drain their precious capital. The rise in bond yields caused tremendous damage. The Financial Regulatory Bill (aka Dodd-Frank Bill) will be suspended, just like the suspended FASB Rules on accounting practices in April 2009. The big US banks are to become bigger uglier darker zombies, more desperate too. The resistance to liquidate remains firm and steadfast with the utmost urgency and resistance.
The bagholder post will go to Yellen. Greenspan exited before the Lehman killjob and the Fannie Mae protection from fraud awareness. Bernanke has been a hack office mailroom boy managing over the Great American Weimar Experiment, with no good results. Ben is a loser, who is disproving his own doctorate thesis on stage live. The diminishing returns for QE are becoming clear and documented. As Lance Roberts of STA Wealth Mgmt shows in the simple chart below, it has taken $35.17 of government intervention to generate a single $1 of economic growth over the past five years. More importantly, the rate of diminishing returns is increasing. In other words, it is taking consistently more volume in intervention to create any incremental increase in economic growth. The Jackass contention is that the economic recession is going worse, hardly a recovery, with no growth whatsoever, since the great lie remains at least 5% on the price inflation deflator tool. See John Williams work, which shows the true CPI for inflation is around 7% to 9% every year. The True GDP growth rate is around minus 3% or minus 4%, based in reality.
Witness a fascinating aspect known to Ponzi Schemes. The volume must ramp up to keep the bubble stable. Eventually not enough volume can be lured into the bubble in support. In this case, the Exch Stabilization Fund team has the trusty highly leveraged Interest Rate Swap derivative machinery. The Jackass contends that the first fracture was seen in the IRSwap machinery in May 2012. The incident saw the emergence of the London Whale, replete with lies to explain the multi-$billion losses. The Taper Talk resulted in the TNX (10-yr TBond yield) rising from 1.65% in May to 2.95% in September, a staggering 130 basis point rise, sufficient to force deeper cracks and substantial functional damage in the IRSwap machinery. Consider that the machinery is no longer effectively performing its designed work, thus the need for Flash Trading in circle jerk manner among the Wall Street banks on the USTBond desks.
CRITIQUE OF SENATE STATEMENT BY YELLEN
Before the august body of mostly compromised and bribed senators, Yellen stated her position. It toes the line obediently. It tows the elite carriage also, complete with banker parasites as cargo. It assures continuation of the present destructive policy. It promises no change, no reform, no solution, only a path toward the cliff and into the abyss. Yellen stated,
“I consider it imperative that we do what we can to promote a very strong recovery. I do not see the program as continuing indefinitely. We are attempting to assess whether or not we have seen meaningful progress in the labor market. What the [Fed's policy] committee is looking for is signs we will have growth that is strong enough to promote continued progress.”
The first rebuttals must be made clearly, since done repeatedly by the Jackass without much of any echo from the economist community, or from the gold community for that matter. By promising to continue the current monetary policy of zero rates and bond monetization, until officials were confident a durable economic recovery was in place that could sustain job creation, she has in fact promised to continue on the present path until the systemic breakdown, until the body economic is sufficiently weak that it fractures and collapses. The reason is simple. The current monetary policy kills capital, and with wrecked capital comes weaker business performance, and inadequate internal dynamism to sustain the entire system. The reason is simple. The hyper monetary inflation, done by means of bond monetization, euphemistically called Quantitative Easing, results in a reaction of equal magnitude to protect institutions and individuals from the inflation with hedging activity. The reaction is motivated by investment in energy (or their deposits), in industrial metals (or their mines), in Gold & Silver (not their certificates), and in farmland (or foodstuff futures).
The consequence to the rampant inflation is a higher cost structure, which the economists and bankers refuse to discuss. The consequence is shrunken profitability for companies and businesses. The consequence is shutdown to business segments, with job losses. The consequence is retirement of capital equipment, their mothball, and their liquidation. So when Yellen and Bernanke talk of continuing QE and bond monetization until the USEconomy is strong enough to sustain growth, they are ignorant liars and economic heretics. They are poor students of capitalism and the corrosive effect of their mandated inflation. They are therefore on a collision course with systemic failure, economic breakdown, and USGovt debt default. They will perpetuate their destructive monetary policy, because they have no choice. They will perpetuate their destructive monetary policy until the systemic breakdown and debt default occur, which they will blame on the Chinese and Saudis for their USDollar abandonment. Yellen will preside over systemic failure.
Yellen claims that current policy benefits outweigh the costs. She must be referring to the unending outsized astounding benefits for big Wall Street banks. The QE initiative itself is a gigantic hidden backdoor bailout of Wall Street banks, which raises costs to Main Street businesses. To the many corporations and businesses, especially the small businesses, the QE is a plague. None of the amplified liquidity reaches Main Street, but the higher costs surely do. Yellen is a liar.
Yellen cites no timetable for ending ZIRP (the zero bound interest rate) or QE (the bond monetization, aka hyper monetary inflation). She is not in a position to end either policy, since both were tested during the Taper Talk trial balloon. Expect the ultra-low interest rate forever. Expect the bond monetization purchase initiative to ramp toward infinite volume. The pressures for the USFed to cover and redeem what foreign governments and prominent institutions (like banks and investment firms) sell in USTreasury Bonds will be tremendous. The foreign bond holders are diversifying and dumping. The USFed will become the buyer of last resort in a horrific flood of USTBonds coming home to sender. The present foreign bond holders will wish to convert them to Gold bullion. Expect the ZIRP & QE policies to continue until the systemic breakdown or until the USGovt debt default. Obviously there is no timetable, since it will drag on forever, if their wishes are met. But the markets and the opposition in the East will not be deterred. Yellen is stuck in a quagmire.
Yellen denies that the US stock market or US Housing markets are in a bubble. To begin with, even CNBC and Bloomberg talking heads comprehend that the bull market is stocks is the primary result of the USFed easy money policy. They are the dumbest guys in the room. A great deal of the free money is directed into stocks. Surely Yellen is aware of the Working Group for Financial Markets (aka Plunge Protection Team) and their work to support stocks, mainly financial stocks. Surely she is aware of the Flash Trading (aka Algorithm Computer Trading) schemes deployed regularly by Wall Street in rotation to maintain artificially high stock share prices. The US Housing market admittedly is not in a bubble. It is a market in charred ruins, maybe dead, not quite buried, surely comatose, but clearly not reviving. The only significant housing demand with broad shoulders comes from the Private Equity firms who are buying tranches of residential homes from the big banks. The banks are unloading their REO foreclosed homes to the next unwitting fool, the Private Equity firms. Two experienced Hat Trick Letter subscribers have assured that these firms are in for a nightmare, with troublesome tenants, sabotage, disrepair, gone to seed, and required bribes to evict, not to mention the challenge to find good paying tenants. They have direct experience in the Miami Metro and North Ohio regions. Yellen conveniently did not deny the USTreasury Bond market was in bubble territory. The USTBonds are the biggest asset bubble in human history, courtesy of the USFed and its crafty team of colluding central banks. Yellen is a liar.
Yellen boasts of diligence to spot risky financial behavior, as in heading off the next asset bubble. She might finally have such an unobstructed privilege. In the past, she warned Greenspan and Dudley, but to no avail. The asset bubbles continued, and they all broke. The damage is now at her feet. She cannot repair the damage without installing a Gold Standard and presiding over the liquidation of the big Wall Street money center banks. If Yellen is diligent, she will identify the current abuse of interest rate derivatives required to sustain the bond bubble. They constitute risky financial behavior. Yellen will be caught in a Catch-22. She will not be able to cite or to halt risky financial behavior, since it is required to sustain the USTBond bubble. She must defend the USTBond structure, which means defending its bubble nature on a repeated endless basis with full denial. She cannot pinprick the bond bubble she is hired to defend. Yellen is a liar.
Yellen promises to use policy to prick future asset bubbles. This is totally empty talk couched in propaganda of the most vacant variety. Her Wall Street masters will not permit any such pinprick. They are the asset bubble engineers in power, whose work will not be inhibited by any silly USFed errant boy or girl in the chair post. The asset bubble Yellen should be most concerned about is the $3.7 trillion balance sheet held by the USFed, loaded with toxic worthless crappola. Harken back to all the Collateralized Debt Obligations taken by the USFed, the leverage squared hokum paper with mortgage bond basis in the leverage, all worthless. The USFed gobbled up the worst assets at the highest prices from the onset. The claim by Yellen to be vigilant to asset bubbles is stupid talk, empty words to appease dumbass and corrupted Senators, as well as the dumbass and ignorant American public, notwithstanding the dumbass and clueless global observers. One must wonder if Yellen was watching when the USFed ran a trial balloon, during the springtime Taper Talk chapter. It was both a trial and a bluff, in order to gauge the effect of withdrawn hyper monetary inflation, to judge its extensive reach. The answer was universal. All global financial markets were affected, both in the industrial world and the emerging market world. You gotta laugh at the label of the Western mature nations, which shed their industry, having dispatched their factories to the East. The West is to become the De-Industrialized Third World. Yellen will not pinprick any future asset bubble. She will defend to the pathetic decrepit villainous demise the USTreasury Bond bubble, without ever referring to it as a bubble. The rest of the world will do exactly that, accuse the USGovt and USFed of sustaining and defending to the death the USTBond bubble. Yellen is a liar.
Yellen argues that higher capital and liquidity at the biggest US banks as a high priority. The recent maneuver by Citigroup makes this claim a lie, as they are fostering a bill through the USCongress that relaxes the capital requirements and puts aside the obstacles for the big US banks to participate and persist in derivative trading. The so-called Prop-Desk Rule is being discarded. If Yellen were sincere, she would argue that the FASB accounting rule suspension be put back in place, requiring the big US banks to declare fair market value, the mark to market value for their damaged goods, their impaired assets on balance sheets. Yellen will surely honor her pledge in keeping the liquidity ample for benefit to the biggest banks. So expect the new USFed Chair to relax capital requirements, while directing inflationary flow of funds into their coffers. It is too late anyway, since these big once powerful giant banks are dead insolvent zombie monsters Yellen is a liar.
PREVIEW OF A YELLEN FED
The Yellen position on monetary policy should be clear. It will show no change from the Bernanke Fed, only more frustration to fix anything or to alter any course. Yellen is a free money advocate. She has urged extreme measures like negative interest rates while supporting massive bond monetization. Expect a steady hand on the same destructive course. The Yellen Fed will print money forever in the errant hope to create jobs, but with true motive to bail out the big US banks behind our backs. Her past shows several confrontations against bad policy, all proving her to be correct. She will serve as a bagholder at a late stage, with no option to depart from the current monetary policy of zero bound rates forever and bond monetization to infinity. Her tenure will be pocked by frustration and marred by desperation, as the USDollar is being currently rejected, and the USTBond is currently being dumped.
In a speech given in March 2013 before the National Assn for Business Economics Policy Conference, Yellen made the absurd statement, “If it were positive to take interest rates into negative territory, I would be voting for that.” One is left to wonder how it would be decided, and by whom, that doing so would be positive, meaning to have benefit. Yellen has a solid career resume, if credit is given to the defenders of the current system. She holds the post of Vice Chair of the Board of Governors of the Federal Reserve System. Previously she served as head of the San Francisco Fed, and as head of the White House Council of Economic Advisers in the Clinton Admin. She is a Professor Emerita at the Berkeley Haas School of Business at the Univ of California. She continues the pedigree strain common to the USFed Chairman position over the last two decades, an ethnic syndicate job requirement methinks, with certain dietary dictums.
Yellen sees nothing dangerous, destructive, or harmful in the current Quantitative Easing initiatives held in place by the USFed. She pointed to potential costs of its asset purchases, which need to be monitored over time. She does not see anything that would lead her to advocate a curtailment of our purchase program. In other words, she sees no capital destruction effect from a rising cost structure in response to the extreme USDollar debasement at work in a corrosive manner. She errantly believes the ZIRP & QE policy will help foster a stronger recovery and keep inflation close to the longer-term target. Neither concept is correct. She cites vague policy risks, but does not elaborate. Doing so would surely cause hot debate, thus silence to be heard. She acknowledges the high cost that unemployed workers and their families are paying in this disappointingly slow recovery. She concluded, “There is the risk of longer-term damage to the labor market and the economy’s productive capacity. At present, I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more-rapid growth in employment.” Pure delusion.
The current status noted, but not the risk of aggravation due to the USFed policy itself. The stated risk to productive capacity seems close to an admission by Yellen of capital destruction. The consensus is that a Yellen Fed will be looser with amplified free money and for a longer period. Any new USFed has no alternative, or else sudden collapse. To promise of continued zero bound with heavy bond monetization until the USEconomy recovers is a promise of its continuation until the systemic failure. No USFed chief in history has been better qualified than Yellen, as far as being a veteran system wonk, but be not encouraged. In glaring contrast, Alan Greenspan was a political speech writer for Richard Nixon. Sir Alan never truly earned a PhD in Economics, his parchment being an honorary degree from Columbia University. Greenspan did however author some excellent essays on the benefits of gold and its proper role at the center of the financial system, now proved correct. The irony is that Yellen will preside over the systemic failure that she herself warned about.
The USFed under Greenspan and Bernanke has had a history of creating bubbles and then pricking them, with an important hand in every crisis. The ongoing endless perpetual ZIRP & QE is their legacy, which has placed a noose around the neck of the nation. Systemic failure, dead ahead!! The Gold Trade Standard will rise from the ashes of the wrecked USTreasury Bond bubble, the greatest grandest beast in asset bubble history. The Jackass view is simple. Janet Yellen is set to take the bagholder post as the new USFed chair. She is stuck in the current monetary policy with no option to alter the course toward catastrophe. She has no workable options. Her acceptance for the job is testimony to pride, not ambition. One must be very curious what reward she and Bernanke were offered to manage the Weimar wagon train and centrifuge on the caboose.
Yellen cannot stop the Zero Interest Rate Policy, or else face an implosion to the USEconomy from rising rates. She cannot stop the Quantitative Easing policy either, or else face an implosion to the USTreasury Bond market from unwinding carry trade, diversification among foreign bond holders, and the lit fuse of derivatives. Yellen is bound to continue the amplified free money course, despite the growing risks and certain capital destruction. A key question is whether Yellen will slip in a comment that ZIRP & QE kills capital and thus inhibits the delusional recovery, the requirement to end the accommodative policy. The final question is whether Yellen will submit well to nasty deforming unflattering caricatures in the press. Of course she will. We humans are all funny looking.
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