Nikkei Falls 6.4%, Overseas Markets Escalate Hissy Fit Over Cut in World Bank Forecasts, Fed Taper Talk

The big shortcoming being exposed by the Fed’s talk of tapering QE isn’t just that it’s premature. The central bank could have had its cake and eaten it too by using the “T” word and then in case of overreaction, sending minions out to reassure investors that it didn’t mean it, really, they just had to say it to appease the hawks (not in that formula, mind you, the mere fact of running around and looking concerned about markets having a bit of a swoon is more important than content). It’s that any QE exit subjects the Fed to conflicting objectives and Mr. Market may have finally awoken to that fact. It didn’t help matters that the World Bank injected a further dose of reality and cuts its growth forecast to 2.2% (aside: how anybody believed their initial rose-colored-glasses projections for the year is beyond me).

Plus, to make matters worse, the Fed clearly has no idea, really, how to exit (will it really just “taper” and announce a reduced amount per month? Will it cut the amount purchased one month or two and see how that goes and then announce a plan? Investors got a sense of confidence knowing the Fed would be buying on a regular basis, even though setting quantities meant the central bank was not and could not control the rate impact. So the focus on quantities rather than rates makes it very hard for the Fed to ease out gracefully).

Now Bernanke & Co. might have assumed that enough insiders understood that nothing was happening any time soon so that any market tsuris would be short lived. As Bloomberg reported last week:

Chairman Ben S. Bernanke needs to see four months of job growth averaging at least 200,000 to justify reducing the pace of asset purchases, according to Vincent Reinhart, a former director of the Fed’s Division of Monetary Affairs. Roberto Perli, a former researcher in the division, said the central bank would need to see that pace “through the summer.”…

“I don’t think today’s report says anything about tapering at all with unemployment going higher and metrics in terms of the work week and wages being very dour,” Gross, founder of Pacific Investment Management Co., said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. Bernanke “won’t taper. But I think ultimately in order to get a more normal economy, the Fed has got to move interest rates up to more normal levels.”

Boston Fed president Eric Rosengren and Chicago’s Charles Evans, both voting members of the Federal Open Market Committee this year who have consistently supported increased stimulus, have cited job growth of 200,000 as a benchmark for labor-market improvement.

Now some economists thought the Fed might act on lower job numbers, But as our employment commentator Hugh pointed out in his assessment of the latest jobs report, May in fact is typically one of the best months of the year for job growth, and it was just not good enough. And that’s before you get to the fact that the taper talk alone has goosed some key rates, most important, mortgage rates. Admittedly, as we’ve also discussed, that could lead to a short-term buyer rush to lock in mortgages now, but that’s simply pulling housing demand forward and would be reflected in relative weakness later in the peak selling months even if rates stayed flat.

But the failure of anyone in a position of authority to come forward and qualify the “T” word has led to escalating investor worries. Some of this may be outcomes the Fed quietly approves of, like the yen’s rise to 94 to the dollar. That should please China and South Korean officials (the South Koreans were particularly vocal about the yen’s decline when it had reached 100 to the dollar), but has steepened the slide of the Nikkei, which was down over 6% today and entered official bear market territory, and Hang Seng fell over 2%. European equities are rocky too, with the FTSE down 1.1% and the DAX nearly 1.7% lower.

Although Abenomics apparently has produced a strong gain in Japan’s last quarter GDP, as far as the Nikkei is concerned, the index has lunched from 7,000 or so to roughly 14,000 or so for the last 20 years. It would be ironic if all these heroic measures did in the long run was raise the top of the range by 10%. The “T” talk more generally has led to an exodus from emerging markets, with Japan being treated as an honorary member of that group.

This is all having a 1937 or a 1997 feel about it. In both cases, the authorities (in the US in 1937, in Japan in 1997) talked themselves into thinking that stimulus had gone on long enough, that the economy was enough better, therefore it was time to take the foot of the pedal. In both cases, the economies went into reverse pronto. Now this time around, the result is likely to be less dramatic, at least in the US, because we’ve got more automatic stabilizers and the severity of the crisis, and the degree of overt stimulus, was vastly less than in our Depression or in the early part of the lost decades in Japan. But we are nevertheless cutting Federal spending prematurely. As we’ve discussed, when you have the business sector net saving (as it did even in the last expansion) and you have households saving (which they do in aggregate; a few quarters in the early 2000s were noteworthy departures from this long-established norm), and you are running a trade deficit, you NEED the government sector to run a deficit, or the economy contracts. And if the economy contracts, all those debt to GDP ratios certain economists fetishize get worse.

The Fed conundrum is that its rate policy appears to have an asymmetrical impact. As many economists have argued, it doesn’t and can’t do much for the real economy. But all Fed’s and Treasury’s insistent cheerleading and mortgage-bond focused QE have goosed the stock and housing markets and more animal spirits at least in some sectors and regions. Our reader economic reports from around the country suggest that certain affluent communities (large swathes of DC and Silicon Valley, some parts of Seattle and LA, Honolulu, for instance) are hot. North Dakota has low unemployment. But lots of the county appears to have come off the bottom but has more or less stagnated, or has an appearance of recovery in some sectors but on weak foundations. So the recovery is, consistent with national data, mainly an upper class phenomenon, with the rest of the country left behind. And while monetary policy isn’t so hot at producing real economy growth, raising rates will choke off activity. So it will be interesting to see, if the Fed does not decide to talk nice to the markets, how strong that effect will be at a low level of nominal rates. The further problem is with inflation continuing to fall, if the Fed does not talk interest rates back down, that the increase in nominal interest rates will exceed the increase in real rates.

The real reason for the volatility is that investors may fear not just an increase in rates, but a suspension of the Bernanke put. Unlike Greenspan, who made an art form of misdirection, Bernanke and his minions can’t figure out how to square the circle of letting investors believe they have a floor under the markets while withdrawing QE-induced negative real interest rates. We’re likely to see a continuation of volatility until either Fed officials soothe investors’ rattled nerves or economic data comes in soft enough to reassure them that the arrival of the dreaded “T” event is further away than the Fed tea-leaf readers had hoped.

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    1. R Foreman

      > Chairman Ben S. Bernanke needs to see four months of job growth averaging at least 200,000 to justify reducing the pace of asset purchases

      They can get job growth if they just keep reducing wages. Of course if Ben stops buying all the worthless debt then those jobs go away. It’s kind of a catch-22, but then monetary deflation always is.. nobody wins, and people with money lose especially badly.

      1. john bougearel

        4 consecutive months of 200k plus jobs never happened in the last job mkt recovery 2004-2006. Its never happened in the entire time series dating back to 2001.

        Given the economic recoveries in the new millenium are decreasing in robustness, we are not likely going to see 200k plus for 4 months anytime soon.

        Notably, that was not the Fed saying this, but Vince Reinhardt putting words into Bernanke’s mouth. So I question why Reinhardt is trying to add a third and rather unattainable threshhold for the Fed. Reinhardt isn’t even a non-voting member. What sort of gobbley-gook meaningless nonsense is Reinhardt spewing?

        What is the agenda? Is Reinhardt trying to police and dampen market volatility?

  1. kjboro

    Deck chair rearranging continues. Ship sinks oh so slowly. First-class passengers get the life boats.

  2. Chris E.

    How much of the Nikkei volatility is just douchebags like Kyle Bass trying to find ways to score off JGB’s indirectly? (since they are limited in the positions they can take on that market as the Japanese aren’t dumb and whitey has tried to play off rising rates for over two decades now).

    Haven’t seen the states on foreign vs. domestic participants on the latest run-ups, but from what I’ve seen in the other volatility it’s been a battle between Mrs. Watanabe and foreig traders. The two markets that the foreigners can actually play around in with freedom are the Nikkei futs and USD/JPY contracts — and that’s where we see the volatility.

    The Fed tapering fear is definitely evident in expectations though:

    Certainly has been a shift in the last month.

  3. jake chase

    The rats will begin leaving the ship very very soon. But the stock market rats have no one but shorts left to buy. Could be very ugly.

    What will Ben do next? Don’t let it spoil the day long broadcast of the US Open.

  4. Arkansasangie

    By implication, the fed buying/flow is good.

    What a crock of odiferous material.

    Negative real interest rates … A necessary evil?

    Horse manure

    Door number three please Vanna

  5. MikeNY

    I wonder if Gentle Ben actually wants this uncertainty; it is clear to me that financial markets are once again very frothy, and more and more people are warning of a new bubble. Does the Bernank really want to go down in history as another Greenspan, yet another reckless, serial bubble blower? Heaven forfend this one explodes before he’s back at Princeton.

    Spare a thought for the man: it’s a sad, hard day when you have to accept that your revered dogma of “trickle down” isn’t true, and that all you have been is the toy poodle of the plutocrats, and an enabler of a feckless zombie government.

    1. Richard Kline

      This. And ditto, Yves: “Some of this may be outcomes the Fed quietly approves of . . . .” Yes, as I’ve expressed my opinion perviously that the Fed’s silence is intentional.

      The Nikkei has been substantially driven by offshore money on a momentum play. Likewise speculation in emerging markets. Whose money? That’s right . . . . Uncle Ben’s E-Z-Pawn window around on the left at the Fed puts bucks in _big speculative banking shops_, not at all in the real economy. With domestic growth minimal and rates kissing the cold, dead lips of zero, that money goes chasing return around the world in the worst kinds of risk plays. Ben needs to take some of that free-floating cash off the market, he just doesn’t know how much. Or even how too, really. If this ‘queasing’ strategy is to work, that money has to be put to work domestically. A good, thorough thrashing of the speculators—which we now see on—leads them to bring the bucks home. Of course they won’t invest that money in production or anything, but that is likely Ben B.’s earnest hope. Folks will want to take note that US equities aren’t seriously impacted yet—and cinching them back a notch or three would accord well with a forced risk-off play by the Fed.

      We won’t hear any concerned tut-tutting out of Ben Bernanke until and unless _American_ markets take a large dive. Which doesn’t really seem on the horizon, but who knows. All of this damper on the party action seems to be wholly intentional. And warranted, frankly.

      1. jake chase

        I agree. We need a crash to unhorse the speculators. Then, perhaps the adults among the elite can start being serious. How many do you suppose really still buy into the neoliberal bushwa? The day it stops fattening THEIR oxen they will deposit those neoliberal economists in the trash, bum side up.

        At least, I hope so.

        1. Jessica

          I propose that the elite as a whole has long since structurally lost the capacity to generate adults. The speculators are the elite.

      2. craazyman

        Yeah I bet the B.B. would love to shove it right up Wall St.’s ass.

        I bet these guys make him sick. I bet he just sits there and says “I have to play the Fed Chairman on TV, but in real life I’m a Hawaiian shirt wearing margarita drinking baseball fan who happens to be able to do some math and testify before congress but I think these Wall STreet lizards should go someplace and painfully die.”

        You can see it on his face. At least I can. he’d love nothing more than ripping the face of the leveraged speculators.

        I tried going short a few months ago but lost lots of money, that was before losing more in GLD. There’s little left to lose, but I may try. hahaha. This sort of commentary by Yves isn’t very helpful, as all it is is rear view mirror stuff or play calling like in spawts. We want some actionable advice that works.

        It’s like Heisenbergs’ Uncertainty Principle. You know Bernanke wants to ram it up their butts but you don’t know when he’ll get the fist out pumping hard.

          1. charles sereno

            Gentlemen: Can we not give a care to the modest sensibilities of NC’s readership? I admit smiling all the while disapproving of your overly frank comments.
            PS: Psst, keep it up.

        1. Richard Kline

          Ben could waste the speculators anytime he wanted to. He doesn’t for at least two reasons. The world’s financial system is presently so unbalanced and fragile it’s hard to tell what the outcome of even a medium-sized shock would be. Bernanke may not care nearly as much as he thinks he does about real economies but there are many other oligarchs with a stake in The Way Things Are, and he is functionally beholden to them. Second, Bernanke is too intellectualy constrained to see finance in a pragmatic fashion, in so far as I can tell. Bungle Ben has spent his career _caring and deeply_ regarding how many bps can dance on the head of a pin to see Big Money as the scaled up thimblerig gaming that it is. Ben want’s to do a calculation, not a raid with fire and sword—so Ben is _always_ gamed by the system’s players.

    2. Chris E.

      Let’s be fair to Ben. His hands are, for all intents and purposes, tied. Most readers of NC know that this is not problem with a monetary solution, it will take a large fiscal measure to correct (either by clawing back hidden fortunes overseas that avoid tax to fund major stimulus, or structural reform to rebuild the middle class by changing the tax/regulatory structure to stop rewarding vulture capitalists/bubble gamblers).

      Aside from extremely radical measures, Ben can’t do much to fix the main problems facing the US (unemployment, underemployment, inequality, oligarchy). He’s really done what he can up until now. Perhaps he could have publicly pressured Congress more and dropped serious hints of the need for a job program or to fight inequality. Perhaps he could have taken a much more active regulatory role (forcing banks to take losses on bad assets, breaking up the banks). But he did learn the biggest lesson from the Great Depression at least: don’t let M2 contract. And for that we should be grateful to him, for as central banker that was his main duty.

      This crisis is a failure of governance on the legislative and executive branches — the fiscal end of things. Let’s put the blame where it belongs, or at least weight them appropriately. Warped taxes and regulatory structure (thanks to Reagan/Clinton NAFTA etc) fuel the inequality which has destroyed the middle class and broken the backbone of the economy and left us reliant on bubbles.

      Bernanke can control the flow through the spigot, but it’s Congress (through its power to spend and tax) that controls what direction and what bowls the tap flows into.

      1. Paul W

        Please save your sympathy for someone more worthy, perhaps a responsible, tax paying, money saving, average citizen. I understand you are simply pointing out what Bernanke can and cannot do, however the suggestion that he actually cares about anyone outside the Country Club is surely misplaced. To suggest he’s actually done some good is downright offensive. Perhaps time will prove you right but these elites do not deserve the benefit of doubt. Any good from their actions which benefit the average citizen will be an unintended consequence. They couldn’t care less about the untermensch. The sooner people realize that, the better they can protect themselves from these psychopaths.

      2. Lune


        I think you let Bernanke off way too easily. He’s one of the most powerful people in the world in economic matters. To say that his hands are tied is to dismiss the levers of power he has.

        Firstly, yes, he *should* have taken a more active regulatory role. He still can, but chooses not to. The Fed is supposed to be an independent authority. Regardless of how corrupt Congress is, Bernanke could and should have taken the banks under his authority to the woodshed for their behavior. While he can’t prosecute crimes and get perp walks, he can effectively kill off banks. That type of power could have been put to much better use. Perhaps if it was, the banks wouldn’t be so craven in their speculative activities in the past few years.

        Secondly, yes, he should have lobbied Congress harder. Greenspan had no problem essentially telling Clinton that the budget surpluses he had should be used to pay down the debt and not be spent on new programs. He then famously told Bush it was okay to spend the surplus on tax cuts instead of continuing to pay down the debt. These were nakedly political statements far beyond the monetary purview of a central banker, and guess what, they worked: Clinton, despite pressure from his base, didn’t spend the surplus, while Bush got enough cover from Greenspan to get his tax cuts passed through Congress. Now I happen to disagree with Greenspan’s statements. But I can’t deny their power. That power is still there. Bernanke just chooses not to use it.

        There’s a difference between de jure power and de facto power. Bernanke has abdicated his responsibility to use his de jure power to regulate the banks, and has chosen not to use his de facto power to influence fiscal policy.

        1. Chris E.

          Bernanke’s problem perhaps was that he was more of a stand-up guy and legitimate academic than Greenspan was. Bernanke is a true believer in “central banking independence” being utterly crucial to a modern system (China is a perfect counter-example of that), and so he chose not to exercise what you call the de facto power of a central bank (as it violates what he considers an axiom of optimal central banking).

          In principle though it’s the same critique people have against Obama — that he is not playing the same dirty games that Bush was in pushing others around and manipulating the process and even ignoring the law. And it’s also a wider critique of liberals in general that the reason why the right-wing wins is because when the liberals are in power they don’t play the same power games to push through their agenda.

          Bernanke could have done more, but he’s no Greenspan. I will defend him against that comparison for sure. Because Bernanke is limited in what he can do operationally. The “helicopter Ben” analogy is truly a falsehood. If he actually _could_ responsibly drop money out to people to spend, he would be doing that, but he can’t. Instead he can just play around with bank balance sheets and poke them to lend. He can’t initiate federal spending, he can’t implement taxes that redistribute gross inequality.

          We’re at the zero lower bound, Bernanke has done everything he can to keep M2 growing on a balanced path. However, we’re in a liquidity trap and Congress has been derelict its duty to deliver on growth in the spending programs needed to generate the employment and inflation necessary.

          My concern is that even if Bernanke were to do something like buy up unsecured debt under the “exigent circumstances” clause of FRA that would literally put money in people’s hands, that maybe the judiciary or even Congress or the executive would do something to stop such radical actions. On the less-radical end, if Bernanke were to introduce a plan for NGDP level targeting (for example), it may be questionable how well that can be delivered in the current environment and could really damage the central bank’s credibility.

          But in the area of regulation, you make the strongest point that he should have done more. And you’re right. It’s tough to argue that he couldn’t have done more to keep them accountable. He could have really reformed the Fed to take a much more active role in regulation, as a way to distinguish from Greenspan’s laissez-faire style.

          Aside from that, I really do trust Bernanke’s motives for a number of reasons (I actually met him once when he came to speak at my university in my undergrad yeas) — his financial disclosures and professional history show that he’s a stoic academic. I’ve also studied his speeches and see no reason to think he’s a shill for banksters. I think he really does understand how what he does affects everyone and, well, it could be a lot worse.

          1. Richard Kline

            So Chris, you misunderstand Bernanke in my view. Indeed, he’s not a shill for the banksters—it’s a case of pure intellectual capture. Bernanke makes liquid billions available to the banksters. He knows and they know there’s nothing he can do whatsoever to control _how_ the use it. They have an unbroken record of massively damaging speculating; they are going to speculate. Ben has done NOTHING up until now to constrain that speculation. He is responsible for the distortions which result.

            I’m not of the view that his inactionto this point is simple connivance. He lacks the intelectual depth or moral core to stand up for anything larger. He believes that ‘the banks must be save’ despite the abundant evidence that, as presently constituted, they are criminal, irredeemable, and actively destructive of the real economy. His brief is to manage the problem of the banking system; he is not doing that. Pretending that ‘Congress should do it’ isn’t germane _even though it is true that, yes, Congress SHOULD_ attack the predators at the top of the financial system. Ben doesn’t seem to believe that he is authorized to stand up to the banks, that his job is to move digits around and let the magic of the market make growth out of that. No private demand and active speculation by the recipients ofhis gross largess equals no growth, an outcome Ben’s brain just can’t seem to get itself around.

            Bernanke’s a man in a wet paper sack moaning he can’t move. And Chris: this is _exactly WHY_ Ben Bernanke was pushed forward for the Chair he presently occupies. You get that, don’t you? (Evidently not.) Bernanke was chose because it was clear he was so intellectually constrained that he _couldn’t_ bring himself to act outside the box the oligarchs and corrupt neoliberal economic intellects have built into which he climbed as an undergrad and has spent his entire adult life living in and being fed their pap through a bung. He’s a complete mediocrity as a public actor, his scope (if not depth) as a scholar notwithstanding. And that’s what got him his job.

          2. Lune


            I actually agree that Bernanke is better than Greenspan (although that’s not a very high bar IMHO…). And I understand that in some ways he’s more humble and wary about misusing his influence beyond the confines of central banking. I would appreciate that belief more if only Bernanke was consistent in his application of it.

            All that is a nice way of saying Bernanke is being hypocritical or at least inconsistent. Firstly, the dual mandates of the Fed are low inflation and high employment. They are both given equal weight in the Fed’s charter. And yet Greenspan and now Bernanke give short shrift to the employment part of that public duty. Yes Bernanke makes noises about employment, but he only leaps into his helicopter when the markets dive. Where was Ben when people were being fired and thrown out of their homes in 2007/2008? Even his talk of tapering QE (and I’m not a fan of QE, but that’s the solution Bernanke has chosen to use) is based on placing concerns about inflation / interest rates above unemployment.

            It seems ironic these days, but the Federal Reserve was created in order to *wrest* power from Wall St. and make governmental monetary policy serve people outside of JP Morgan’s inner circle. That’s why the Fed is comprised of governors from all parts of the country. The fact that the NY Fed Governor is the only permanent member was a concession with the hope that the rest of the Board would be able to outvote it when necessary. If Bernanke is truly an academic expert on central banking, then he should understand the whole raison-d’etre for the Fed is to prevent monetary policy from being monopolized by Wall St. Yet he has continued that ruinious direction.

            Secondly, more specifically, you state that Bernanke doesn’t use his de facto ability to influence Congress out of some respect for the checks and balances of government. In truth, he has been less independent than even Greenspan. Bernanke has been so tight with the Treasury Sec’y that there was hardly any difference between Bernanke and Paulson and now between him and Geithner. That’s hardly evidence for independence.

            Furthermore, if he’s so deferential, why does he fight the numerous Freedom of Information Act requests plus Congressional initiatives to open the Fed’s books and audit their purchases? If he’s truly deferential to the legislative branch, he wouldn’t lobby so hard behind the scenes to defeat or water down these initiatives.

            Similarly, I distinctly remember Bernanke being side-by-side with Paulson in pushing for TARP, a direct fiscal intervention by the Treasury Dept. Where was Bernanke’s academic deference there? Or does he somehow believe that TARP (paid for by deficit spending and ultimately taxes) was a monetary intervention within his purview?

            I could go on. But I hope you get my point. Bernanke’s “deference” to the legislative process only occurs when it’s the hoi polloi’s fate being discussed. When it’s Wall St’s ass on the line, Bernanke musters every lever of influence he has to save them.

      3. Richard Kline

        So Chris: “Warped taxes and regulatory structure (thanks to Reagan/Clinton NAFTA etc) fuel the inequality which has destroyed the middle class and broken the backbone of the economy and left us reliant on bubbles.” You have the causality misaligned in that statement, and to me that is why your remarks don’t seem to quite fully engage with the structural distortions in the economy.

        The US economy isn’t ‘dependent upon bubbles,’ the economy has been enervated deliberately to make bubbles _possible_. The point of the regulatory, tax, and other changes begun by Reagan’s mountebanks and continued since has been specifically to _enable_ unconstrained speculation and asset looting. Because such actions are extremely profitable for malefactors at the top of the financial and political system. Everyone knew even in the 1980s that speculation could blow up institutions because, well, it HAD done exactly that whenever criminals at the top found the wiggle room to wreak ruin. But that time something WAS different: they had their man, Greenspan, in the Fed, who handed them lifeline rates and every conceivable regulatory break when things went sour, the rest of the economy be damned. The regulatory apparatus in place got in the way of the speculators and their man Greenspan, so that regulator structure was _systematically stripped away_. This was not done to ‘enhance the economy’ as billed, but to decriminalize egregious speculation and the connivance of the country’s financial authorities in using public resources to make the oligarchs whole when they put a few billion things wrong. Andy growth to the real economy which came out of unfettered speculation was incidental to the program of enriching those at the very top of the food chain.

        The economy is getting KILLED by the bubbles, the fizz goes flat but the debt remains. But those at the top keep getting more of the marbles because the regulators are in their pocket and the Fed cowers before their misdeeds. Seriously. There are many, known ways to stimulate and repair the real economy: All of these conflict with the present US policy of unconstrained aid to a tiny coterie of gross speculators at the top of the financial system. It’s pointless to blame Congress, not that they are blameless, since the Congress was quite stupid and corrupt enough to effectively decriminalize many of these acts and lay the economy open to pillage. Yes, re-regulation should happen, but there’s no will to that, and the public is in the main too brain dead and bought in to opbject; really, most are just hoping for the crumbs to start falling off the plutocrat’s tables again, unable to conceive that that’s what such transitory financial gains are down on Main Street. If the real economy is ruined in the process, _that’s all to the good of those at the top_ because they have fewer constraints and the Fed just keeps giving them more marbles to play with which can be used to bet on other plays in the rest of the world: commodities, overseas equities, shorting the euro, playing BRIC bond run ups, looting the Japanese health care system if they can pry their way in, etc., etc., etc. A real economy which really functioned might *cough* get in their way and crimp their relative advantage.

        We aren’t dependent upon bubbles, we were made subject to bubbles for the profit of those who gain by them.

    3. NotTimothyGeithner

      If its not just short term greed, Bernanke is just the Pope of the current priesthood. Like most Popes, they don’t get to be Pope by being reformers or having thoughts outside the mainstream or the priesthood. I doubt he is capable of even grasping Greenspan is a failure, and I think the phrase “conservatism can’t fail, it can only be failed” explains what is occurring through society. Experts have been trusted for so long, they have morphed from experts to a priesthood, and in a way, they are incapable of changing course because it would attack their identity and status at their corp. Bernanke was a loyal follower of Alan.

      In a way, Bernanke’s status is intertwined with Greenspan’s.

      In the U.S. Civil War, a middling former West Point Cadet went from a drunk tossed out of the army to forcing the surrender of Robert E. Lee in four short years despite a relative legion of better West Point graduates ahead of him with better political connections. People get stuck in their ways and can’t think around them, and real wars do tend to cull the herd.

  6. Yearning to Learn

    Great post. The fed is trapped in qe infinity as many of us predicted in 2009. A small quibble though. Nobody believes these IMF or world bank or Fed predictions. It’s simply the idea that the rosy prediction had to be downgraded in the first place.

    1. efschumacher

      If only the Fed could directly put their $85b/m into something useful like stopping bridges falling down, fixing roads, diversifying the transportation infrastructure and perhaps even educating kids. Then when the tap finally does turn off, at least there will be something tangible to show for it.

      1. Richard Kline

        That would imply paying real workers real money, bub—and that’s socialism? In our smiley-button corporate fascist state, only plutocrats get funded by the public financial authorities. That’s the American way, after all, and always has been. (You can look it up. Giving the wealthy and well-connected preferential access to public assets is the principal upon which our country was _colonized_ and Ireland before that. What we are witnessing now is the epitome of a social policy some 600 years in the refinement.)

        1. efschumacher

          Yes, I know. All those land grants given by James I, that only needed the inconvenient ‘squatters’ to be cleared out: largely accomplished by 1620 with bouts of typhus, measles and other common European diseases.

  7. Warren Celli

    There is a nice Freudian feel to the word taper. I wonder if Ben The Sphincter was aware of it when he chose the term. He has been straining, grunting, and groaning out one big load of crap for so long maybe he felt on an unconscious level that he needed a soothing word that would describe not the Bernanke Put but rather the forthcoming tapering Bernanke Plop into the toilet bowl of financial history. For sure he knows that even on a conscious level many folks consider the FED to be the asshole of the financial system.

    But wait… there’s more! More assholes that is. All in need of tapering. All over the planet. Listen carefully. You can hear the grunting, straining, and groaning in Japan, in China, in the Uk, etc. It is no wonder investor’s nerves are rattled. Maybe they should take a lesson from Florida’s senior citizens. Maybe it is time to stock up on Depends. Or maybe it is enema time? Or maybe it is time to operate and get a rectum transplant.

    Or maybe it is time for humanity to take an honest look at the herd thinning diet of baloney it has been put on by the Xtrevilist few and recognize that the uncertainty that has now moved to the top of the greed chain is a function of the decline in the morality embedded in the rule of law.

    Go long toilet paper!

    Deception is the strongest political force on the planet.

  8. Malmo

    Bernanke needs to step up and indicate exactly what he plans to do. This is no time for cryptic statements from the Fed chair. Markets hate uncertainty. Bernanke knows this. Seriously, is he a fucking sadist? Enough already.

  9. Susan the other

    The Bank of Japan is making money available for two things it seems. One is overseas investment, Africa, India, and Spain. The other is military buildup. This in response to a crash in its exports, a wily, gigantic trading partner to the west, and a devastating earthquake/tsunami with no one very willing to invest in Japan. If Japan is desperate for foreign investment in its little empire it has to do all the austerity things, like join TPP, cut welfare, etc. But Japan is behaving weirdly. It is almost like an excuse to fund the global expansion of Japan Inc. (the earthquake tsunami). And another non sequitur: The Sakalin Island dispute with Russia, to the north of Japan. Russia is cooperating with Japan because Russia is interested in Japanese technology for “geothermal agriculture.”

  10. alex morfesis

    ah yes 1937..the year that was not what it appears to be…at least not in the minds of economists who hate fdr…july 1937 a little country called japan formally started its war with china…and…lets see…spain…i remember something about spain in that year…and ethiopia, when the greeks started to supply arms to the guerilla movement as fellow orthodox christians…yeah and adolf the red nosed reign-dear was involving himself in that little country he was born in…yeah…no reason for anyone in the us economy to worry and think twice about long term investments…none at all…and 2013 is so much like 1937…

  11. allcoppedout

    We are all queezing, though the EU has quasi-queeze – one assumes the central bankers had a cosy chat about this. The key issue is whether the banks were bust in 2007/8 or just temporarily short of cash flow (i.e. how bent were the books?) – I doubt an academic would understand any of this. One expects highly dubious assets have been propped up or ditched with magic bean promises onto the unwary or vulture funds at cents on the dollar. When real businesses are propped up like this, the hope is new orders will bring a return to profits. My guess is this is as unlikely as the ten year hope I witnessed in British Shipbuilding and the banks don’t even have assets to sell off for house building. What we need from banks is streamlined business practices and products that do what it says on the tin.
    Some elite in banking understood how to rip off the conglomerates’ desire to grow by acquisition – hollowing out their own businesses and ring-fencing anything worth anything before putting themselves up for hostile takeover (No due diligence). I doubt academics generally could understand this until after the event.

    Anyone seen anything on what happens to us after the crash?

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