The Fed will be a New Creature Soon, and No One Knows What It’ll Look Like

Markets are blowing off this uncertainty for now.

On Thursday, the Senate confirmed Randal Quarles, President Trump’s first Fed nominee, as a member of the Federal Reserve Board of Governors. During his confirmation hearing, Quarles said it was time to roll back some of the regulations that were imposed on banks after they’d imploded and threatened to take down the global financial system. He will become the chief bank regulator at the Fed, filling the slot that Daniel Tarullo left behind when he resigned unexpectedly in April.

Quarles is founder of private investment firm, The Cynosure Group. Fed Governor Jerome Powell is also a Cynosure alumnus. Quarles had been a partner at private equity firm The Carlyle Group and served as undersecretary of the Treasury under President George W. Bush. WHIRRRR makes the revolving door.

One down, four more to go.

The Fed’s Board of Governors has seven slots, currently chaired by Janet Yellen. After Quarles’ appointment, potentially four more will need to be filled over the next few months.

The seven board members are part of the policy-setting 12-member Federal Open Markets Committee. The other five members of the FOMC are the president of the New York Fed and on a one-year rotating basis four presidents of the remaining 11 regional Federal Reserve Banks.

First, there’s Chair Janet Yellen, whose four-year term as Chair expires in February. Trump, after skewering her repeatedly during the campaign for keeping interest rates artificially low, has warmed up to her, because now he likes low interest rates. But he said that he hasn’t made up his mind whether or not he will reappoint her. Meanwhile, he is looking at a panoply of other candidates.

Then there’s the Vice Chair. Stanley Fischer resigned unexpectedly in early September. His last day on the Board of Governors will be October 13. He has been one of the key proponents of reversing low interest rates and unwinding QE.

And there are two more slots open on the Board of Governors that Trump will likely fill over the next few months.

“The amount of turnover, the number of vacant seats, I think this is historically unprecedented – certainly in my lifetime,” explained Alan Blinder, Vice Chair of the Fed’s Board of Governors from 1994 to 1996, and now an economist at Princeton.

Markets have so far blown off this uncertainty.




At least since President Reagan, new Presidents have reappointed the prior Fed Chair for at least one more term, even if the Fed Chair had originally been appointed by a President of the opposing party. It was done to give markets a sense of stability, continuity, and confidence. Each of those reappointments had been communicated to the world early on.

But this is October, and still no one knows who will run the Fed next year, who will be the vice chair after October 13, and who will fill the other two vacant slots on the Board. Trump could reappoint Yellen for the sake of stability, but I doubt it. I think he will use this historic opportunity to shape the Fed.

The Fed is an enormously powerful institution. It has the tools – open market operations, the discount rate, reserve requirements, and asset purchases (“money printing”) – to interfere massively in the credit markets. It moves short-term interest rates by targeting the federal funds rate. It has the ability to manipulate down long-term rates via jawboning and outright purchases of Treasury securities and mortgage-backed securities of all maturities. It can let long-term yields rise by unwinding QE, which it has started to do this month. It regulates banks and has presided over the Financial Crisis when these banks threatened to collapse. And it serves as lender of last resort to banks and corporate America when their bets turn to dust.

The Fed has been riding its experimental monetary policies since 2008. In its function as lender of last resort, it also used short-term loan programs to bail out banks and Corporate America during the Financial Crisis when credit froze and companies could no longer borrow in the markets to cover their daily needs. This included industrial companies, such as GE and Caterpillar. These short-term loans have long been paid back.

The Fed has crushed savers and the earnings power of their $9 trillion of life savings on deposit at banks. This policy was designed explicitly to transfer wealth from savers to banks, in order to recapitalize the teetering banks and enrich their investors. The economy has suffered from this as the cash flow that savers – many of them retirees – were counting on just disappeared, and these folks had less money to plow back into the economy.

The Fed has assiduously inflated asset prices, going from the dotcom bubble to Credit Bubble 1, which included Housing Bubble 1, to the current Credit Bubble 2, the largest credit bubble in human history, which has become the “everything bubble,” including Housing Bubble 2. The prior two bubbles imploded with great fanfare.

The Fed has been working tirelessly to shift wealth around. Labor and savors have gotten shafted. Asset holders benefited. It’s a well-oiled machine. This machine has shifted into reverse recently, raising rates in slow and tiny increments and unwinding QE, with new winners and losers down the line.

But now uncertainty reigns about this machine. No one knows who will run it, and some of the key components are still missing. The QE unwind as planned has unanimous support in the current makeup of the Fed and is likely to continue. And another rate hike in December is likely. But starting next year, interest rate policy is a big unknown. The new lineup could be more hawkish or more dovish, or it could be off the chart entirely, and no one knows.

But two things we can already see after the Quarles appointment: Bank regulations will be weakened, and the revolving door between the Fed and Wall Street will whir loudly.

Central bank interventions have created a new record in central-bank absurdity. Read… The Pricing of Risk is Kaput




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  74 comments for “The Fed will be a New Creature Soon, and No One Knows What It’ll Look Like

  1. truth always
    Oct 6, 2017 at 11:45 am

    Genius in politics is to promote one thing while doing the exact opposite.

    Trump is therefore a genius “Drain the swamp!” while he is filling it with his own cesspool.

    I voted for him, knowing that he may have do things better than Hillary but not any worse….I would have gladly voted for Bernie…

    (I hope AI government takes off….but but.. what about the biases built-in to AI?)

    • cdr
      Oct 6, 2017 at 3:11 pm

      Trump current news item ” … the calm before the storm.”

      now the calm, followed by the Warsh nomination and the speech that follows .. ???

      • will
        Oct 7, 2017 at 4:53 am

        Haven’t you been paying attention?

        He’s in the process of vetting Kim Jong Un to be fed chairman.

        • cdr
          Oct 9, 2017 at 2:53 pm

          interest rates to the moon. My new hero.

    • Jas
      Oct 6, 2017 at 5:33 pm

      What I think most people don’t understand is when Trump said he wants to “drain the swamp” it is the “taker class” who is in that swamp.. Wealthy folks are on a yacht.
      Mitt Romney famously said, “My job is not to worry about those people, I’ll never convince them they should take personal responsibility and care for their lives.”

    • California Bob
      Oct 6, 2017 at 8:13 pm

      “Voting in Wall Street’s Republicrat puppet show is a waste of time.”

      Yeah, because foreign policy doesn’t matter one bit. Nope, not one bit at all.

      • Wilbur58
        Oct 7, 2017 at 12:34 am

        Bob,

        What’s the difference between Republican and Democrat foreign policy?

  2. Oct 6, 2017 at 11:58 am

    Deregulation implies higher interest rates? Quite the opposite I think. Rates should have been raised in 2008 and they should be dropping now, and they will be, if the Fed steps out of the way.

    • will
      Oct 7, 2017 at 5:04 am

      “true deregulation” (if such a thing is even theoretically possible) would imply astronomical rates because lending for anything is obviously a terrible credit risk. Assuming the lender is on the hook for the loses in a traditional sense.

      As the case may be, since this is not how risks are carried currently, I think that you are right – “deregulation” in a true unfettered market assumes regulatory capture and control fraud such that unlimited money can be created implying that /any/ yield at all is profitable, and the bankers themselves are never on the hook for not being paid back.

      I think that what you’re getting at is that the term “regulation” means different things to different people and circumstances. But if “the fed steps out of the way” it’s difficult to see anyone willing to lend money except at very high interest rates. I mean, who would you be willing to lend your money to personally (for me the answer is always “no one who’s asking”).

      • Oct 7, 2017 at 10:35 am

        Logical but that is not the reality. The Fed had to use financial repression to raise rates (RRPO) which is a broad enough tool that even non-charter banks are compelled to follow. LIBOR is a somewhat contrary factor, since it runs higher than FedRates, but that could change in one Fed meeting. By regulation I suppose we mean derivatives primarily, most of the interest rate derivatives are registered and almost none of the currency derivatives. So you have to assume the Fed is not too concerned with that. As long as the global control mechanism on interest rates and currencies is working they can deregulate all they want. Like the faux populist president, the Deep State has his back at each and every turn. Of course once you loosen the bolts on the rail that holds the toy boat on course then anything can happen, but we’re not talking about that.

  3. Jack
    Oct 6, 2017 at 12:10 pm

    “It can let long-term yields rise by unwinding QE”

    This is incorrect.

    QE leads to higher long-term yields. Unwinding of QE does not lead to higher long-term yields. Speculation prior to QE may do that, but nothing else.

    Long-term yields are a function of growth rates and inflation. Canada has no QE, Switzerland has no QE – look at their long-term yields.

    No reason whatsoever for US long term yields to be 1% higher than UK.

    US GDP growth rates will soon move to the 1% range.

    The buyer of Treasuries from the FED (primary dealers) would be a sucker to keep buying treasuries on expectations that their prices will keep falling – monkey math.

    But hey, you can believe whatever you want. In a country where the Bill Dudley-led $4 trillion dollar trading desk NY FED pays primary dealers in reverse repos to take treasury collateral in exchange for “cash”, collateral that is passed on to hedge funds and rehypothecated several times, in the US and possibly in Europe (via London), anything is possible – and not criminal.

    • Oct 6, 2017 at 12:28 pm

      “QE leads to higher long-term yields. Unwinding of QE does not lead to higher long-term yields.”

      That’s a mix of non-sequitur and wishful thinking.

      • will
        Oct 7, 2017 at 5:36 am

        If monetary policy had no effect on long-term rates, there’s no theoretical justification for it having any impact on short-term rates either (because what’s the difference, only a function of time?).

        And I don’t think anyone here would argue that – because otherwise no one would be here talking about it.

        What I think that Wolf is getting at (and forgive me if I’m misconstruing this) is that what/how the QE channels actually work in real life is secondary to what Fed actions regarding QE signals. /if/ this is signaling a secular shift to a high(er) interest rate regime regardless of how or why this paradigm shift may be occurring, then it is reasonable to assume that long-term rates will follow suit as the Fed blabs about why it is or isn’t able to control them.

        It’s worthy of note that high rates – high growth; low rates – low growth, are not historically married relationships. It’s possible to have sky-high rates during an economic depression, or ultra-low rates during boomtimes – and history has seen every mix of these.

        While I might mention that I do not know the secret sauce for getting one or the other per se. What I /suspect/ the fed is interested in is having having our Japanese “lost decade” (even though it’s been like 2.5 decades now) coupled with an interest rate regime that society can both navigate and believe in.

        I don’t think that the OP (or others) are wrong to be skeptical of their ability to accomplish this (in so many words). That being said, I would rather live in a recessionary world with navigable interest rates, than the current recessionary world with un-navigable rates. And I think that this is the conclusion that a lot of people are arriving at, similarly I think that consensus is starting to gravitate to the camp that it’s worth ‘trying’ to get this to work, damn the consequences, because what we’ve got now isn’t working so well at all.

        On a more personal note: 2007/8 was the shot across the bow, if people haven’t gotten their books in order since then, then there’s no saving them – only the kids deserve to be bailed out this time, they’re the only demographic that can legitimately claim that they didn’t know better and were forced to play ‘the game.’ I think that things are going to become pretty interesting this time around, and there will be a whole lot of people losing their shirts..

    • Oct 6, 2017 at 2:14 pm

      The SNB has no QE? They just ramped up their purchase of US stocks with money printed using high in the Alps thin air.

    • BTilles
      Oct 6, 2017 at 3:21 pm

      Hi Jack,

      Re “unwinding QE does not lead to higher rates”:
      The Fed’s balance sheet has about $4.5 trillion of securities with over half being US Teasuries with the bulk of the rest being mortgage backed debt. Shrinking their balance sheet is another form of monetary tightening. The uncertainty, at least to me, is whether this can be successfully executed on this scale without roiling the markets (see Bernanke 2013) and have this all occur before the next recession when presumably the Fed might need to lower interest rates and engage in QE again.

  4. realist
    Oct 6, 2017 at 12:11 pm

    In a few paragraphs, you have succinctly summarized the goals underlying Fed policies since 2008, and their consequences — highly adverse unless you are a bank, another large corporation, or a < 1 percenter. Bravo!

    Now we must watch out for the revolving door – it can trip up even the nimble.

  5. TJ Martin
    Oct 6, 2017 at 12:16 pm

    Basic reality . Trump in his blind envy and prejudice will do everything he can to erase every aspect good , bad or indifferent of Obama’s presidency . So be it this month or over the next six say goodbye to Yellen .

  6. Gershon
    Oct 6, 2017 at 12:22 pm

    The Fed will continue to do what the Fed has done since 1913: serve as the oligarchy’s chief instrument of plunder against the 99%. The faces may change, but the prime directive remains the same.

    Can’t Elon Musk figure out a way to harness the power generated from the revolving door between Wall Street and the officials who are supposed to be overseeing it? We could power the whole Eastern Seaboard.

  7. Rates
    Oct 6, 2017 at 12:30 pm

    The new one will look like …. the old. Different people, same agenda.

  8. J.M.Keynes
    Oct 6, 2017 at 12:31 pm

    – I fear it will simply mean:
    1) more crony capitalism
    2) less regulation
    3) the chance of imposing a new Glass-Steagal act has dropped even more (assuming there still was such a chance left)
    4) an increased chance of more Quantitive Easing.

    – The advantage of a person that has worked at the Treasury in the past is that they have a much more sound view on what’s going on in the financial world than a person who has worked its entire life on Wall Street (like e.g. Gary Cohn).

    – I wonder whether or not the FED will change its policy of letting the FED Fund Rate follow the 3 month T-bill rate.

    – No, the FED is NOT responsible for blowing all the financial bubbles. The FED can only pump more money/issue more credit but it’s the investors\speculators who determine where that money/credit will be invested.

    • Oct 6, 2017 at 3:04 pm

      You said: “I wonder whether or not the FED will change its policy of letting the FED Fund Rate follow the 3 month T-bill rate.” This is such utter nonsense. You confuse cause and effect. You keep saying it time after time, thus showing every time that you don’t WANT to understand how the Fed operates. Too bad, because most of your other comments are good.

      • Raymond C Rogers
        Oct 6, 2017 at 9:10 pm

        I’m sure I’m not the only one who does not know anything about this subject? Do these relationships with rates matter, and if so, why?

        I’m going to try to query it, but suspect that the words I use for th le query will guide me to answers from a particular single viewpoint.

        • Oct 7, 2017 at 12:10 am

          The Fed uses various methods to influence short-term rates, including directly targeting the federal funds rates via market intervention on a daily basis. Yields of maturities beyond that are influenced by this federal funds rate, by Fed jawboning about where rates will go, by market events, etc. The thing to note is that the Fed doesn’t want to surprise the markets. So it telegraphs its policy changes in advance. And the credit market follows the Fed, or sometimes refuses to follow the Fed, in which case there can be a sudden market adjustment when reality sinks in.

          In no case does the Fed follow the 3-month yield. But the 3-month yield follows the Fed, with some deviations and sudden adjustments.

  9. Drango
    Oct 6, 2017 at 12:37 pm

    Succinct and accurate summary. This is a nice contrast to the fawning op-ed that Paul Krugman wrote in the New York Times today. Apparently, according to Mr. Krugman, the Fed has been “superbly” run by “distinguished” academic economists like Bernanke and Yellen, who exhibited “intellectual and moral courage.” How courageous of an academic economist to praise other academic economists, especially ones who have spent a decade making the world safe for bankers who operate in ways Krugman can’t even comprehend. I recommend reading the op-ed if only for its freakish view into the mindset of academic economists, but try not to vomit on yourself if you do.

    • Gershon
      Oct 6, 2017 at 6:14 pm

      Paul Krugman is a shameless propaganda tout for the Keynesian fraudsters running the Fed. Did you expect anything less than gushing platitudes that outdo even the fawning praise heaped on the Dear Leader Kim Jong-Un by the North Korean media?

  10. Willy2
    Oct 6, 2017 at 12:37 pm

    – It doesn’t matter who’s on the board of the FED when (long term) interest rates start to rise. Then the chickens (REALLY) come home to roost.

    • milking institute
      Oct 7, 2017 at 7:18 pm

      Totally agree.Not an expert on the ins and outs of the fed but one thing is for sure IMO,once inflation wakes up from it’s hibernation,as all that printed money finally hits mainstreet,the fed will be forced to act and raise rates. no matter who is the chosen figure head. i find this discussion of Yellen’s replacement silly,the play book is all written and much bigger than just another Harvard professor that has never even run a lemonade stand let alone a business.

      • milking institute
        Oct 7, 2017 at 7:31 pm

        Unless we hit a downturn in the economy and the fed has to start printing all over again,debasing the dollar in the process. either way,Gold will be the winner.

        • d
          Oct 7, 2017 at 9:36 pm

          Problem with the current Gold price.

          It is at a market manipulated high.

          17 X 20 = 340 that’s what its worth when you take out the divergence from silver which is also currently a little high.

          The 20 multiple on silver, goes back to before “Bretton woods”

          It still stands..

  11. OutLookingIn
    Oct 6, 2017 at 12:39 pm

    Business as usual at the Fed.

    Roll back regulations on the banks. What regulations is Randal Quarles talking about? The banking/financial sector has had a free hand to do pretty much what they have wanted to do since repeal of Glass-Steagall. Effectively removing the public’s, financial malfeasance firewall from the banks.
    With Steve Mnuchin as head of Treasury, who has stated that he is against government intervention in business, which is ironic since he made his money from government intervention in business! By using tax payer money to buy mortgages that were distressed, then to foreclose on tens of thousands of families, through a failed bank he bought for pennies on the dollar during the 2008 melt down.
    Yes, I must say, it certainly looks like business as usual at the Fed. Only now with the additions of what look likes, even more ravenous hubris.

    • walter map
      Oct 6, 2017 at 1:14 pm

      How America’s Biggest Bank Paid Its Fine for the 2008 Mortgage Crisis—With Phony Mortgages!

      https://www.thenation.com/article/how-americas-biggest-bank-paid-its-fine-for-the-2008-mortgage-crisis-with-phony-mortgages/

      Crony, cronier, croniest.

      If two wrongs don’t make a right, just keep piling them up until they do.

      • cdr
        Oct 6, 2017 at 1:32 pm

        Two wrongs not making a right is NOT the way of Kick the Can.

        Kick the Can requires one to ignore reality and replace it with a new plan that proponents claim loudly WILL work while providing continued benefits to those who need them for free. The cardinal rule of Kick the Can is Use Other People’s Money, even if its only printed money.

        Re the Fed: If Warsh gets the job, expect reality to reassert itself. Rate normalization and a small balance sheet while ignoring the S&P 500. Otherwise, negative rates are coming eventually, although not immediately, and Wall Street can expect the skim to continue eternally. No Warsh = Fed becomes ECB eventually.

        The people appointed will provide the support for either outcome.

      • Justme
        Oct 6, 2017 at 1:52 pm

        Great link, Walter. Is Jamie Dimon finally going to jail?

        • Gershon
          Oct 6, 2017 at 6:16 pm

          Justme, you forgot to add a “/sarc” tag.

          I assume you can’t possibly be serious. Laws are for the little people.

        • IdahoPotato
          Oct 6, 2017 at 6:53 pm

          No. He’s too busy continuing to defraud people. He called Bitcoin a “fraud” and said anyone who invests in it is “stupid”. He helped create a dip, then J.P. Morgan firms invested in 3mn Euros worth of Bitcoin notes, plus the firm is working on its own Etherum blockchain.

          https://news.bitcoin.com/after-the-boss-calls-bitcoin-a-fraud-jp-morgan-buys-the-dip/

      • Raymond C Rogers
        Oct 6, 2017 at 10:22 pm

        Good link. As with most major banking or real estate scandals you have two major perpetrators- big banks and big government.

        This is not a scenario unlike the behaviors of Florida municipalities who turn a blind eye when developers want to build on unstable ground. Real estate makes easy money and the government collects more money from the taxes. The average citizen is fleeced from both sides.

        Who makes out with QE? Answer- the same entities. More money for RE and tax revenue for local and state government bodies.

    • R2D2
      Oct 7, 2017 at 6:40 pm

      What more banks want? They borrow at lower than 1% interest rate and lend it at 25% even 35% interest rate to the dummies who fall into their trap. There would be more rules even if we lived in a jungle; even cavemen had some rules. 25% interest rate is not enough for them? I guess we should loosen the regulation so that they can practically ra** the public in broad daylight.

  12. Gershon
    Oct 6, 2017 at 12:47 pm

    Glass-Steagal is a litmus test on whether a President is on the side of the people, or Wall Street. Bill Clinton’s repeal of Glass-Steagal gave his bankster pimps free rein to launch an orgy of greed-fueled speculation unmatched in American history.

    While Trump talked a good populist-nationalist game during the election, his appointments of Swamp Creatures to run our fiscal and monetary policies, and refusal to even mention Glass-Steagal, tell all.

  13. Gershon
    Oct 6, 2017 at 1:53 pm

    The Federal Reserve cue card:

    Step 1: Create fake money stealing value from everyone

    Step 2: Loan the fake money to people with interest

    Step 3: Take people’s stuff when they can’t repay the debt

    Step 4: Get government to enforce our fraud

    Step 5: Plunder humanity

  14. cdr
    Oct 6, 2017 at 3:19 pm

    If Warsh gets the job, Fischer quit the Fed because he saw the writing on the wall. He could no longer be a fake monetary hawk when the new boss is a real one.

    • Gershon
      Oct 6, 2017 at 6:22 pm

      Your innocence is touching, Pollyanna.

      Warsh will be indistinguishable from Yellen and Ben Bernanke. There are no Fed “hawks.” There is only incessant jawboning and dissembling about mythical pending rate hikes to try to talk up the dollar and suppress the price of gold. Sure, Yellen might raise by .25% in December, but the Fed’s rate hikes to date have all been outstripped by the rising inflation Yellen purports not to see.

      All of these Fed fraudsters, like Bernie Madoff before them, know that there’s no such thing as tapering a Ponzi.

  15. MF
    Oct 6, 2017 at 4:04 pm

    If aggregate national lifetime savings is half the GDP, does it stand to reason that the average household has half a year’s income worth of life savings?

    If so, that means average life savings of U.S. households is around $35,000 with a very heavy skew toward the top 20%. This would mean that the vast majority of households in our aging population have a few months’ income set aside in cash.

    Since wealthy households are the only real players in stocks & bonds, that leaves houses (30% of which are owned outright) as the major non-cash asset. What happens when everyone rushes to downsize at the same time?

    • Bobber
      Oct 6, 2017 at 9:19 pm

      That’s an interesting way to look at it. Do you think the $35,000 includes home equity. My guess is that it does not, so you’d have to add home equity to the savings number.. However, even with home equity added it seems like a low amount of savings, especially given the Fed’s apparent plan to inflate any cash savings away.

      • will
        Oct 7, 2017 at 5:53 am

        /mean/ American net worth is something like $800,000 per household, while /median/ net worth is something like $12,000, if I remember correctly. These two numbers have been moving apart, so maybe it’s now like $1M and $0, as I’m probably remembering this from a few years ago.

        This includes housing, along with stocks, bonds, etc. I’m not sure where the $35k number comes from in the OP exactly, but I would assume that it does not include anything other than cash (ie M1, M2 type asssets), otherwise the number would be far larger.

        As to how specific asset classes will perform in the future given these numbers and other uncertainties – draw your own conclusions.

        p

  16. Nick Kelly
    Oct 6, 2017 at 4:23 pm

    ‘I think he will use this opportunity to shape the Fed’

    In accordance with which, or rather, whose school of thought?
    You surely aren’t suggesting that Trump himself has ideas about Fed policy, apart from liking low interest rates ( and which Pres doesn’t)

    With a desire to keep rates as low as possible the only thought likely to cross his mind, why not just keep Yellen, who is one with Bernanke in fearing above all a 1930’s deflationary collapse. She has managed to claw back three- quarters of a percent in Fed rates, but I can’t imagine anyone referring to her as a Fed hawk.

    Oh,oh! Just remembered that the Fed warned yesterday against Trump’s ‘big beautiful tax cut’ which guarantees larger deficits. I just read about it this morning.
    If shaping the Fed means forcing it to accommodate whatever deficits the government wants, then I guess Yellen might be considered a hawk.
    So then it would be goodbye Yellen and, if she is replaced just to get someone more malleable, goodbye Fed.

    • Oct 6, 2017 at 4:42 pm

      “In accordance with which, or rather, whose school of thought?”

      Yes, that’s exactly what everyone wants to know. Uncertainty reigns supreme. Like I said, the next Fed could be “off the chart.”

      • raxadian
        Oct 7, 2017 at 9:45 am

        Used car salesman?

        Just look at how Trump made his fortune.

        Then again, the interests rates have to rise. Cheap credit has to end and Unicorns to crash.

  17. Memento mori
    Oct 6, 2017 at 5:00 pm

    There won’t be any change at the fed. It will continue to take credit for the positive outcomes in the economy and blame external factors for whatever crap happens, same as all other government institutions.

  18. Jàco
    Oct 6, 2017 at 6:15 pm

    { Then there’s the Vice Chair. Stanley Fischer resigned unexpectedly in early September. His last day on the Board of Governors will be October 13. He has been one of the key proponents of reversing low interest rates and unwinding QE. }

    That’s not even remotely true, W. Richter!

    I have been reading Fischer for a long time……and he’s been one of the key proponents for negative rates and more printing.

    • Oct 6, 2017 at 6:40 pm

      “Reversing” it said. They ALL WERE proponents for money printing, including Yellen from the moment QE first started… she has been at the Fed since 2004 (at first as President of the San Francisco Fed). Every time QE came up she was a proponent – until recently. Now she is a proponent of reversing it. The element here is “reversing.” It’s a huge shift for the Fed, and Fischer was a key part of that shift.

      • Gershon
        Oct 6, 2017 at 6:47 pm

        This black box is very obituary-like, Wolf. Do you still have a pulse?

      • d
        Oct 6, 2017 at 8:49 pm

        I dont find it Obituary like.

        It instantly asserts who is speaking.

        I frequently seek it out.

        A link highlighted name, simply asserts, that poster has other pages.

        As to what p44 does, at the FED.

        It will show us who, or what, is running, the petulant infant in the Oval office. At least with regard to financial matters.

        I say Matters, not policy, as this administration articulates no clear policy on anything, beyond undoing everything it possibly can, the former office holder, did.

      • Gershon
        Oct 6, 2017 at 9:05 pm

        Now she is a proponent of reversing it. The element here is “reversing.”

        Jawboning about reversing QE, and actually reversing it to any meaningful extent, are two very different things. I’ll believe it when I see it. Taking $6B a month off a $4.5 trillion balance sheet is more symbolic than substantive. Also, absent an honest audit of the Fed, we have no idea of what other financial chicanery they may be up to.

      • jm
        Oct 8, 2017 at 12:13 am

        I strongly suspect that Yellen is well aware of the pain being inflicted on savers by low interest rates, but also believes that without QE and those low interest rates the world would have collapsed into a second Great Depression, harming the 99% many times more.

        Although I think that in the long run we would have been better off biting the bullet and taking a more severe recession, and that with proper government policy we would not have had Great Depression II, how could Yellen (and Bernanke before her) have been highly confident that such policies would come forth? The Federal Reserve Act tasks the Fed with three mandates: maximizing employment, stabilizing prices, and moderating long-term interest rates — to some extent inherently contradictory objectives. To not have taken the course of QE and bailouts would have meant making a very big bet that politicians would implement the proper policies.

        In decision making, the most important question to ask about any considered course of action is: “What if it is wrong?” Although the financial repression effects of the Fed’s policies have cost me a *lot* of money in lost interest, I’m sure that if I were to complain to Ms. Yellen about this she would point out to me that the amount of interest income I’ve lost is a pittance compared to the income I might have lost in a Second Great Depression, and certainly less than the income average workers would have lost. And she’d be right.

        I believe that, framing it from a poker playing viewpoint, Bernanke and Yellen made what they saw as the most responsible plays.

        • d
          Oct 8, 2017 at 12:28 am

          “how could Yellen (and Bernanke before her) have been highly confident that such policies would come forth?”

          They were not, which is why they eased, as they did, and the needed policy’s have not come forth, under 44 or 45.

          They Took the prudent bet (there is such a thing( I do it many times a week)) they didnt make much, but the Majority of society lost a lot less than it could have if they had of taken one various others available. or sat as the FED did in 1929. .

        • Bobber
          Oct 8, 2017 at 10:54 am

          It was not the Fed’s bet to make!!!!!!! These decisions should be made by legislators. If legislators screw up, they get replaced.
          That’s how democracy works. It’s not the Fed’s job to anticipate legislative screw-ups and step into the shoes of legislator.

        • d
          Oct 8, 2017 at 2:29 pm

          “These decisions should be made by legislators.”

          Guy

          9 years after the event.

          WE ARE STILL WAITING for action from congress to attempt to alleviate some of the effects of the event in the real economy.

          If the FED had not have acted how it did when it did in 08 America would still be deeply in a depression 3 to 10 times worse than the 1929 – 1946 event.

          Legislators (particularly America ones ) do no,t and never will, act in a timely manner, unless it immediately puts lots of money, in their pockets. Considering this Objectively.

          Can you afford to wait DECADES for congress to act, in poverty and depression, whilst the rest of the world leaves you. Behind.

          At lest the FED did something It didnt get it 100% correct, but at least it acted in a timely manner, and tried to do something. What it did , did not work completely as intended as the FED did not get timely cooperative action form congress or the sitting administration.

          Find a new whipping boy.

        • Bobber
          Oct 8, 2017 at 11:01 am

          “I’m sure that if I were to complain to Ms. Yellen about this she would point out to me that the amount of interest income I’ve lost is a pittance compared to the income I might have lost in a Second Great Depression, and certainly less than the income average workers would have lost. And she’d be right.”

          So the Fed has a crystal ball ? How many times has the Fed been right about anything?

          Recessions are necessary to cleanse the economy of unwanted short-term speculative behavior, so good long-term investments can be made.

  19. Plumas One
    Oct 6, 2017 at 9:34 pm

    Yellen regularly crows about Fed “independence” and is loathe to allow
    a regular independent audit of the Fed. At the same time, the Fed stands
    by while the banking industry gets fatter and fatter on $ 1.2 trillion in student loan debt which is not dischargeable in bankruptcy and another $ 1 trillion in credit card debt with interest rates between 14% and 22%
    at the bank’s cost as low as 1 %. There could be a huge payoff for Yellen’s “independence.” When Greenspan left, 10 money center banks held a private luncheon after which he was gifted with a total of $ 250,000 or
    $ 25,000 from each attendee bank for his loyal “service.” When Bernanke
    left, my understanding is that he got $ 50,000 from each of ten banks at
    a “going away” party in Dubai or the UAE. Fed chairs are regal folks !

  20. Thunderstruck
    Oct 7, 2017 at 1:39 am

    Does it really matter who is chosen to “lead” the Federal Reserve Bank? In the past it has always been shown that as long as the economy is relatively stable, the Chairperson seems to be in charge. Once the economy is upset, then it is obvious that the leader is now clinging to a disconnected steering wheel of a bus heading for a cliff. They swing to the right, to the left, toot the horn and scream in desperation, and the bus still goes where *IT* wants to.

  21. JR
    Oct 7, 2017 at 6:10 am

    Gundlach the Great posits that Neel_Kashkari (see wikipedia or twitter) will be the winner of the Keynesian Beauty Contest and head the Fed. This puts some color in the dismal science. I have just started in on Daniel Lacalle’s book “Escape From The Central Bank Trap” – not enough into it to comment but I like his style of writing. How this thing gets unwound is fascinating. Meanwhile my thinking is that the Yuan will be the first currency to crash after China’s reserves leak out and confidence is lost. Good luck out there!!

    • Oct 7, 2017 at 9:23 am

      My reading was that Gundlach WANTS Kashkari to be the next Fed chair because Gundlach runs a huge bond fund and is worried it will come on hard times when yields rise (bond prices go down). Kashkari is the biggest dove out there and has already said publicly that he is blind to asset bubbles, and that even if he could see them, it’s not the Fed’s job to worry about them, with which he contradicts most other FOMC members who are worried about the banks that use those assets as collateral.

      When Gundlach talks, he talks his book.

      • d
        Oct 7, 2017 at 9:29 pm

        “When Gundlach talks, he talks his book.”

        That combined with the fact that P 44’s decision are driven by his and his family book.

        Does not bode well for the street, or long term America.

      • cdr
        Oct 9, 2017 at 2:50 pm

        happy I wasn’t the only person to think this.

    • d
      Oct 7, 2017 at 9:24 pm

      “Meanwhile my thinking is that the Yuan will be the first currency to crash after China’s reserves leak out and confidence is lost.”

      What will crash CNY/RMB is when the truth comes out regarding how much debt State Debt their really is and how much money the state has truly printed.

      Combined with how much the Equity in state companies, banks an others have been “Forced” to buy.

      Is really worth, compared to is MASSIVE book valuations.

      chinas Gold and FX reserves are infinitesimal compare to these numbers.

      Then as you say Confidence in CNY/RMB will Instantly evaporate. Folowed by “Financial Disaster” in and outside china.

      This has happen in chian several times in history. The first soon after they started using “Printed Paper money”.

  22. Dave B.
    Oct 7, 2017 at 7:25 am

    Swamp creatures ? Demons of the New World Order ! ALL in power, every western Country.

  23. Ishkabibble
    Oct 7, 2017 at 10:54 am

    “The Fed is an enormously powerful institution. It has the tools – open market operations, the discount rate, reserve requirements, and asset purchases (“money printing”) – to interfere massively in the credit markets. It moves short-term interest rates by targeting the federal funds rate. It has the ability to manipulate down long-term rates via jawboning and outright purchases of Treasury securities and mortgage-backed securities of all maturities. It can let long-term yields rise by unwinding QE, which it has started to do this month. It regulates banks and has presided over the Financial Crisis when these banks threatened to collapse. And it serves as lender of last resort to banks and corporate America when their bets turn to dust.

    The Fed has been riding its experimental monetary policies since 2008. In its function as lender of last resort, it also used short-term loan programs to bail out banks and Corporate America during the Financial Crisis when credit froze and companies could no longer borrow in the markets to cover their daily needs.”
    =============

    Wolf, you left out the Fed’s most important function: to fund the US military-industrial complex and pay soldiers and mercenaries to continue and expand the perpetual wars that the US requires in order to literally force the other countries of the world to either continue to accept printed-out-of-thin-air USD as payment for REAL products, resources and services, or destroy those nation’s governments who resist US diktat and, just coincidentally, force their people to suffer the installation of a US-friendly regime that “rules” over the chaos and outright theft-by-fiat-USD of the nation’s remaining wealth or resources.

    It’s truly amazing. All of this and a bunch of other domestic programs paid for with just a push of a computer key. So WHAT if the national debt of the US rises to 100 trillion? Haven’t you heard? Debt doesn’t matter when you’ve got the most powerful military in the world that is funded by the de facto world reserve currency which can, and will, be printed in a “whatever it takes” quantity.

  24. Varughese
    Oct 7, 2017 at 11:10 am

    Where can i find the redemption/maturity schedule of US Bonds

  25. Bobber
    Oct 7, 2017 at 11:48 am

    The new Fed hopefully will be on the lookout for inflation.

    If I were one of the top 1% sitting on a mountain of stock and bond gains right now, I’d be worried about losing those gains due to the tremendous asset overvaluation that is solidly evidenced. Any investment gains that exist today will evaporate if not converted to cash, spent, or invested in active business endeavors. These investors will “use it or lose it” so to speak.

    The Fed is currently tightening the screws on these individuals, and I expect they’ll be highly interested in converting to cash or spending in the near future, which will cause inflation to rise. Once inflation starts to rise, the Fed’s will increase interest rates even more, and there will be a self-reinforcing cycle. The smart one’s who bail early will be the ONLY ones who preserve their gains.

    This huge shift could happen any time, and it may not happen gradually.

    • Tom kauser
      Oct 8, 2017 at 7:55 pm

      The tax cut jive gets us to Jan. 2018 and a new Fed gets to cut rates in Jan. After market forces fed into one more quarter point raise?

  26. ASP
    Oct 7, 2017 at 12:11 pm

    “Quarles said it was time to roll back some of the regulations that were imposed on banks after they’d imploded and threatened to take down the global financial system.”

    Sounds like leveraged buyouts for all!

  27. economicminor
    Oct 7, 2017 at 12:20 pm

    I keep going back to the basics. Our debts need to be serviced by our economy. Which is consumer based, as in around 70% of it is from 95% of us spending money, buying things. AND I keep reading how the consumer is on the ropes or at least near the edge with records amounts of debts and flat to maybe even slightly declining real disposable incomes.

    So, if the consumer is close to the breaking point and the economy is dependent upon the consumer to service all the debts, any action taken by the FED or the Oligarchs that causes a disruption in consumer spending could easily start a collapse in not only new debt creation but even an accelerating collapse in existing debts. It has happened before. Sentiment is a funny animal.

    Why would Trump want to rock this boat? His empire could also collapse along with a lot of others. Is the Power of Positive thinking Group Thinkers so oblivious to the real world economics to really do such dumb things? Most traders must think that Trump couldn’t be that disconnected to the real world or they would be worried. Or maybe it is just a week or two to soon as they process the proposed changes.

    Again Time will tell.

  28. breamrod
    Oct 7, 2017 at 1:25 pm

    the fed has got to raise rates to save the pension funds. My bank asked me the other day if I be interested in a 1.50% savings account. I laughed and said get back to me when it’s 5% ! these pensions need a 8% return and now after nine years many are seriously under funded. So I agree with Wolf and say they will raise rates come hell or high water.

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