Friday, September 25, 2009

"You f**ked up - you trusted us! Hey, make the best of it. Maybe we can help..." From the movie "Animal House"

Just for fun, read this:

U.S. Federal Reserve Gov. Kevin Warsh said in an opinion piece published late Thursday that the central bank might have to begin taking steps to normalize policy before the need is obvious.

"If 'whatever it takes' was appropriate to arrest the panic, the refrain might turn out to be equally necessary at a stage during the recovery to ensure the Federal Reserve's institutional credibility," Warsh said in a piece published on the Wall Street Journal's Web site.

"The asymmetric application of policy ultimately could cause the innovative policy approaches introduced in the past couple of years to lose their standing as valuable additions in the arsenal of central bankers," he said.

Warsh says the Fed is at "a critical transition period." He cautioned that if policy steps are "not implemented with skill and force and some sense of proportionality, the success of the overall endeavor could suffer."

"Policy makers should continue to communicate as clearly as possible the guideposts, conditions and means by which extraordinary monetary accommodation will be unwound, including the removal of excess bank reserves," Warsh said.

Since the global credit crisis began, the Fed has pumped more than $800 billon into the banking system, kept the federal funds rate near zero and purchased so many Treasurys and mortgage-backed debt that the amount of assets on its balance sheets has now swollen to $2.14 trillion.

Got that? I don't know about you, but I really liked the:

"The asymmetric application of policy ultimately could cause the innovative policy approaches introduced in the past couple of years to lose their standing as valuable additions in the arsenal of central bankers,"


Allow me to translate:

"We really f**ked up, and the cure may turn out to be worse than the disease. Our policy moves, both fiscal and monetary, are leading to a complete collapse of the currency, and with it, the system. Holy sh*t! This is bad!"

These guys should hire me as their director of public communications.



Publius said...

If someone like a Fed Gov (tm) is warning us about a possible problem with the Fed's machinations, then we need to worry. Really worry. We know that they consistently understate the problems they foresee (forgetting about those they are too stupid to predict).

Publius said...

Any comments on this latest Denninger post? It seems apropos.

I find his "flight" analogy to be interesting: the idea that by lowering interest rates and increasing the liquidity in an attempt to prevent debt liquidation, the Fed risks "stalling" the economy, or even crashing it. Denninger makes a compelling case that the math "doesn't lie" (as he puts it).

He seems to believe we are on the precipice, but doesn't give a time frame for a collapse.

nina said...

I found it interesting that just today the Senate passed a bill preventing a government shutdown next week. Like, ah, what recovery?

bureaucrat said...


By giving/loaning the banks a trillion dollars to balance their bad loans, and knowing that the banks won't loan it out cause the Fed knows they have no one credit-worthy to loan it out to (thereby keeping the cash out of the economy, thereby suppressing inflation), the Fed has succesfully halted the emergence of a second Great Depression, and at the same time, pumped up the stock market (where were the banks going to put all that cash after all?) making all the baby boomers breathe a sigh of relief at the strengthing of their stock portfolios. Consumer confidence is up, the country is awash in oil and gasoline and natural gas, and every business that wants to stay in business is marking down stuff (my porch sealer person just called saying he got a gallon of porch seal for $18 instead of the usual $40.)

So, how long can this go on? From what I detailed above, the Fed has performed brilliantly, and luck is in our corner. :) So far ....

Abraham said...

Thanks for translating. But who needs a weatherman to know which way the wind blows.

As for deflation in what I buy every week, I don't believe it. I know what my bill is. Maybe compared to last year prices appear lower, but it's a statistical figment of one's mathematical genius. I'm still spending more than last year.

After a 10% rise, 5% can feel good. I don't care how much 5 gallons of driveway sealer cost. Ask some folks shopping at the sueprmarket what they think.

IMHO, somethings gonna give with our currency. It will be devalued.

Anonymous said...


Were you not the one calling for a DOW of 3000-4000 just a few months back? Apology in advance if I confused you with someone else.
Rather doomy, and now your all cheerful? At least Greg supports his change of direction with #'s.


bureaucrat said...

Hehe, I'm still looking forward to a Dow of 5000 (and an S&P of 500). I outlined the case for the Fed above simply to show the logic for a favorable image of what the Fed has done. And it is true that the world didn't collapse in 2008. That does NOT mean I see goodness ahead ... we are in a deflationary depression with 375% debt to GDP -- never been this high before, even since WW2! I'm into commodities and metals just like the doomers are. I'm just saying that for the time being .. sunny skies.

As far as prices go, everything is for sale today. Houses, cars, energy, and yes, supermarket items. Proof: house prices have dropped 30%+, cars are being nearly given away in some places, check the NYMEX to see the drop in RBOB/gasoline and natural gas, and I've laid out the situation here in Chicago with several large store chains (Jewel, Dominicks, Walgreens) who have sales all over the place. It is true that health care and education bills continue to rise, but many more (big dollar) things are dropping.

Greg T. Jeffers said...

I don't fault ANYBODY's ability to predict the future.

I find fault when the data changes, and I don't change. And the fault for that would be 100% mine.

Hello Nina!

Always happy to have a female point of view around here. Please feel free to expound.


It was just too funny... I had to say somthing... "Asymmetrical" indeed... more like "ASSymmetrical"

Greg T. Jeffers said...


That link is not working...

Greg T. Jeffers said...


I am enjoying your blog.

Abraham said...

Jeesh Mr. Jeffers. You are THE man. My little blog is scribbles on a cavewall compared to what you do. Thank you for the compliment.

Unfortunately, I have been a negligent and neglectful blogger. With three jobs though the blog falls near the bottom of the list. Once the weather turns colder and I spend more time inside I'll be back at it though.


Greg T. Jeffers said...


Your libertarian sensibilities certainly appeal to me, as well we seem to share a VERY dim view of Law Enforcement personnel...

but I don't appreciate your stuff because it affirms my own views... I like the community with the outdoors and the idea flow.

Keep it coming.