Yves here. It’s been astonishing to see members of the Fed in denial about their own handiwork, so when St. Louis Fed President James Bullard berates his fellow central bankers for their abject refusal to notice pre-crisis bubbles, it’s an all too rare departure from their usual insularity and willful blindness.
Moreover, there’s one issue that Bullard mentions only obliquely that deserves more notice. Bullard specifically criticizes the way that the Fed decided to increase interest rates in the face of extreme spread compression in all credit markets in a measured, deliberate way. That well-signalled, cautious process in fact was part of a pattern of insulating investors as much as possible from losses, which of course simply encourages more recklessness. Many writers, including your humble blogger, have written at length about the Greenspan, and later Bernanke and presumed Yellen puts, that if financial markets got too upset, the Fed would ride in to their rescue.
But that was not the only way the monetary authority over the years has shielded investors more and more from risk. Another way is the well-telegraphed, slow and steady rate increases when the Fed does tighten. That policy dates from 1994, when the Fed unexpectedly increased interest rates by a mere 25 basis points when investors were almost universally convinced that the central bank’s next step would be to lower rates further. The result was a derivatives wipeout that produced losses bigger than the 1987 crash (as well as lots of hearings). But rather than rein in deriviatives, Greenspan extended his intellectually confused policy of “free markets” as in pushing over time for even more deregulation of derivatives, while intervening more and more in financial markets to blunt the impact of the resulting increased risk taking.
An important article this past Sunday by John Coates in the New York Times explained how various Fed policies meant to increase the safety of the financial system were having the reverse effect. Key extracts:
If we understand how a person’s body influences risk taking, we can learn how to better manage risk takers. We can also recognize that mistakes governments have made have contributed to excessive risk taking….
Over the past 20 years, the Fed has pioneered a new technique of influencing Wall Street. Where before the Fed shrouded its activities in secrecy, it now informs the street in as clear terms as possible of what it intends to do with short-term interest rates, and when. Janet L. Yellen, the chairwoman of the Fed, declared this new transparency, called forward guidance, a revolution; Ben S. Bernanke, her predecessor, claimed it reduced uncertainty and calmed the markets. But does it really calm the markets? Or has eliminating uncertainty in policy spread complacency among the financial community and actually helped inflate market bubbles?…
Our challenge response, and especially its main hormone cortisol (produced by the adrenal glands) is particularly active when we are exposed to novelty and uncertainty…Uncertainty over the timing of something unpleasant often causes a greater challenge response than the unpleasant thing itself. Sometimes it is more stressful not knowing when or if you are going to be fired than actually being fired. Why? Because the challenge response, like any good defense mechanism, anticipates; it is a metabolic preparation for the unknown….
In one of my studies, conducted with 17 traders on a trading floor in London, we found that their cortisol levels rose 68 percent over an eight-day period as volatility increased. Subsequent, as yet unpublished, studies suggest to us that this cortisol response to volatility is common in the financial community. A question then arose: Does this cortisol response affect a person’s risk taking? In a follow-up study, my colleagues from the department of medicine pharmacologically raised the cortisol levels of a group of 36 volunteers by a similar 69 percent over eight days. We gauged their risk appetite by means of a computerized gambling task. The results, published recently in the Proceedings of the National Academy of Sciences, showed that the volunteers’ appetite for risk fell 44 percent.
Most models in economics and finance assume that risk preferences are a stable trait, much like your height. But this assumption, as our studies suggest, is misleading. Humans are designed with shifting risk preferences. They are an integral part of our response to stress, or challenge….
THE Fed, however, through its control of policy uncertainty, has in its hands a powerful tool for influencing risk takers. But by trying to be more transparent, it has relinquished this control.
Forward guidance was introduced in the early 2000s. But the process of making monetary policy more transparent was in fact begun by Alan Greenspan back in the early 1990s. Before that time the Fed, especially under Paul A. Volcker, operated in secrecy. Fed chairmen did not announce rate changes, and they felt no need to explain themselves, leaving Wall Street highly uncertain about what was coming next. Furthermore, changes in interest rates were highly volatile: When Mr. Volcker raised rates, he might first raise them, cut them a few weeks later, and then raise again, so the tightening proceeded in a zigzag. Traders were put on edge, vigilant, never complacent about their positions so long as Mr. Volcker lurked in the shadows. Street wisdom has it that you don’t fight the Fed, and no one tangled with that bruiser.
Under Mr. Greenspan, the Fed became less intimidating and more transparent….Mr. Greenspan notoriously spoke in riddles, but his actions had no such ambiguity. Mr. Bernanke reduced uncertainty even further: Forward guidance detailed the Fed’s plans.
Under both chairmen fed funds became far less erratic. Whereas Mr. Volcker changed rates in a volatile fashion, up one week down the next, Mr. Greenspan and Mr. Bernanke raised them in regular steps. Between 2004 and 2006, rates rose .25 percent at every Fed meeting, without fail… tick, tick, tick. As a result of this more gradualist Fed, volatility in fed funds fell after 1994 by as much as 60 percent.
In a speech to the Cato Institute in 2007, Mr. Bernanke claimed that minimizing uncertainty in policy ensured that asset prices would respond “in ways that further the central bank’s policy objectives.” But evidence suggests that quite the opposite has occurred.
Cycles of bubble and crash have always existed, but in the 20 years after 1994, they became more severe and longer lasting than in the previous 20 years. For example, the bear markets following the Nifty Fifty crash in the mid-70s and Black Monday of 1987 had an average loss of about 40 percent and lasted 240 days; while the dot-com and credit crises lost on average about 52 percent and lasted over 430 days. Moreover, if you rank the largest one-day percentage moves in the market over this 40-year period, 76 percent of the largest gains and losses occurred after 1994.
I suspect the trends in fed funds and stocks were related. As uncertainty in fed funds declined, one of the most powerful brakes on excessive risk taking in stocks was released.
Yves again. When you consider how systematically wrong-headed the Fed’s efforts to condition traders has been, it’s hardly any surprise to see how many bubbles have reflated in the post crisis era. The central bank clearly wanted a certain degree of reflation to occur, but they seem to have no idea of how much reflation is enough or how to let the air out of incipient or actual bubbles.
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Testosterone Pit.
Perhaps accidently wiping out in one fell swoop six years of carefully orchestrated and minutely maintained Fed propaganda, St. Louis Fed President James Bullard admitted to reporters on Monday after a speech in Palm Beach, Florida, that the Fed had dropped the ball in dealing with the prior bubble, that the Fed’s tightening cycle of 2004-06 was “too methodical and did not react sufficiently to economic developments.”
The Fed hadn’t been focused on the ballooning bubble but on the calendar, he said. The very bubble that Alan Greenspan, who was in charge at the time, didn’t see, couldn’t have possibly seen, and denied ever seeing? Yup, that one. “So, the committee was tightening policy,” Bullard said, “but the bubble was nevertheless developing under our noses.”
And the bubbles that are now “developing under our noses,” to use Bullard’s term? Numerous indices have hit all-time highs, often beating prior bubble highs by a wide margin. So here are a few of these craziness indicators. Surely, Bullard and his colleagues at the Fed must have noticed them, especially since some of these indicators are produced by the Fed itself.
- The Financial Stress Index, issued by the St. Louis Fed, hit an all-time low in the latest reporting week, beating the low reached in February 2007, a time when the foundation of the financial system was already cracking. Extremely low “financial stress” means even the most reckless decisions are getting funded and the riskiest crap is getting sold no questions asked as risk has been eliminated from the calculus [Last Time this happened, The Financial Crisis Broke Out].
- Margin Debt spiked from record to record until it hit $465.7 billion in February, or 2.73% of GDP, the highest ratio ever! But in the following two months, it dropped 6.1%; the last two times it dropped after a magnificent spike was in March 2000 and July 2007, with terrific results [This Happened Twice Before, And Each Time Stocks Crashed].
- The VIX volatility index dipped on Friday to the lowest level since February 2007 and remains at half of its historical average. It’s a sign that market participants don’t expect big price movements, and if the selling starts, no one is prepared. Hence, the notion of utter “complacency.”
- Unprofitable IPOs – companies that go public without having made a profit, such as Twitter, and often without a clear picture of how they’ll ever make a profit – were back at record level in the first quarter. The record – 84% of all IPOs – was set during the dotcom bubble in Q1 2000 just before all heck broke lose.
- The spread between junk-bond yields and Treasuries is the tightest since October 2007, the craziest of all junk-bond times when “Merger Mondays” – which are now back in full bloom – were adding spice to TV news shows. Another signs that investors are simply no longer demanding compensation for the risk they’re taking.
- A record $355 billion in new leveraged loans – the riskiest loans out there – were issued last year in the US, and this year started out just as hot. Insatiable demand by desperate investors driven to near insanity by the Fed’s interest-rate repression.
- Banks have issued a record amount of commercial loans, now $10.5 trillion.
- Home prices have surpassed their prior bubble highs in numerous cities, including San Francisco, though those bubble prices are now running into the buzz saw of reality.
- Corporate profits as percent of GDP – how much profit companies can wring out of the economy by, among other strategies, keeping real wages down – has hit all-time highs for two years in a row.
- Ha, and don’t even mention Money Supply, which has rocketed into the stratosphere.
- Not to speak of stock market indices bumbling from one all-time high to the next without a 10% correction in years, while corporations borrowed crazy sums and bought back record amounts of their own shares, to where in Q1, according to CapitalIQ, they’ve become the most prolific buyer of stocks.
And then, there is the whole craziness in San Francisco and the Bay Area that is spreading to other parts of the country. The sums of money being thrown around are breathtaking. And not just Facebook’s paying $19 billion for a texting app maker with 55 employees and a trickle in revenues, or the $18.2-billion “valuation” for Uber – maker of an app that provides a mix of unregulated taxi service and expensive hitch-hiking. It’s getting so crazy they’re even joking about it on local talk radio.
So Bullard’s speech focused on “how far” exactly the FOMC was still from its “macroeconomic goals.” He had his own math. The FOMC is “closer to target” in terms of inflation and unemployment than it has been about 75% of the time since 1960, he said.
To target – that’s the thing. The Fed’s policies of printing $4 trillion in five years and imposing its ZIRP relentlessly on the country – in conjunction with similar actions by other central banks – has created a tsunami of money that washed over the land, made a small group of people immensely rich, inflated all sorts of record-breaking bubbles, and caused the craziness indicators to spike “under our noses.”
During the last bubble, the Fed did eventually tighten, even if belatedly and timidly, and not until after it had nurtured the bubble to its full glorious bloom to where its implosion took down the financial system. This time around, the bubbles have far outgrown those of yore. Yet the Fed is still printing money. And raising interest rates just a tiny bit won’t even be discussed seriously until next year. But unlike the prior bubbles that blew up the financial system, today’s bubbles are different. They’re a sign, apparently, that the economy is healing and getting back to normal.
It was a very basic question: Have there been times when you did not have enough money to buy the food you or your family needed? In wealthy countries, the percentages should be small, and given all the money-printing in the US, it should be zero, you’d think. Read…. QE, Bailouts, And Families Struggling to Buy Food
It may seem a lame excuse to some, but at the heart of the SubPrime Mess (that provoked the nationwide Credit Mechanism Seizure in the fall of 2008, that triggered the Great Recession of 2009) was the fact that there was no oversight responsibility in the process.
Mortgaging is/was a financial market and the Fed’s Charter had not only the right but the duty to inspect mortgaging procedures to assure that creditworthiness inspections/verifications were aptly performed. I live in France, where it is almost a nightmare to obtain a mortgage without all sorts of verification – but if you falsify information on your mortgage request, you can be punished with a criminal offense. Which is why there Was no French-born Toxic Waste and any such waste came almost exclusively from the US. Ditto, Germany, the UK*,
It could have, at least, done spot check mortgage inspections down to the mortgagor level, inspecting/verifying the information given. In fact, it is amazing that such corroboratory info, such as payslips, are not entered to substantiate a mortgage request. These payslips should be, at the very least, verified with the employers.
Moreover, the SEC had the responsibility of assuring that the SubPrimes were not packaged into Toxic Waste and then “securitized” by crony Rating Agencies giving them Triple-A ratings and then being resold as Structured Investment Vehicles (SIVs). Which is colossal fraud.
To my mind, this was a classic failure of oversight responsibility of which Tim Geithner was in part responsible since he was FRB-Prez in Manhattan at the time of a building financial fraud from November, 2003 – January, 2009 during which time the Toxic Waste Mess was progressing. And I am not the only one less than joyful of his subsequent explanation, that focuses more on the effects than the causes.
We should be looking at the causes, since they are eminently repeatable. The prime source was a conventional real-estate bubble, largely fostered by far-too-easy and fraudulent mortgaging processes.
*The one spectacular UK failure, Northern Rock, was caused by the American SubPrime Mortgage market. According to WikiPedia.
1. As pointed out earlier in this thread, there is a big difference between a credit fueled bubble and other types of bubbles. A credit fueled bubble will blow back and damage the real economy in a huge way; even a very big bubble like the dot com frenzy, which is not stoked by debt, won’t.
2. Therefore we have bank regulation to make sure they can’t get hurt very much even if they stupidly lend to overvalued assets.
3. We did NOT have bubbles, much the less financial crises, when banking and finance were strictly regulated
4. The financial crisis was NOT the result of the housing bubble. You saw insanely low credit spreads across all types of debt. You had a monster takeover boom, a bank-enabled ARS securities market (which enabled them to use municipalities as fee generation machines), and explosive growth in credit default swaps.
If the only thing that imploded was the subprime market, we would not have had a global financial crisis. But the authorities allowed banks to create “product” that created 10x the exposure of BBB subprime bonds. It was all the side bets blowing up that made this a global crisis (and more generally, the growth of a virtually unregulated shadow banking system that rivaled the size of the official one) that was the proximate cause of the crisis.
I hate to sound like I’m plugging my book, but you need to read it. – Yves Smith
skippy… suppressed wages meets deregulated underwriting and credit issuance – in a strategic geopolitical fracas – all whilst the world burns.
I must agree with this. There was NO subprime mess in Europe – except for Northern Rock that had taken on too many tainted US SIVs.
What happened is that banks reflexively contracted debt, and THAT did affect adversely consumer spending in the EU. Even Germany, with its formidable export-market was affected, though not as much as others.
The contraction of both the European and American economies necessarily affected World Trade as well.
There were plenty of subprime mortgages in Ireland. Much of the loans made by Irish banks were made to foreign banks / entities who would not have been able to make these kinds of high-risk borrowings in their own country (e.g., Germany, and yes, France).
Many large mortgages were made for purchases of major pieces of high-priced RE for large commercial development in Ireland and abroad (e.g., London, Bulgaria, Hungary, etc.) There were also major loans made to foreign banks (Germany, yes France, and all those other places with good at-home regulation). Plus your garden variety family home buyers and people buying “holiday homes” abroad for speculative purposes. The Irish banks took the hit for this massive amount of debt, much or most of it of foreign origin and the Irish Central Bank stupidly (under pressure from ECB) guaranteed even the bad loans by the foreign banks operating in Ireland (!) and it all got transferred to Irish sovereign debt which Irish taxpayers must now pay.
Ireland’s National Asset Management Agency (which took over all the bad loans) was the largest RE bank in the world or close to it. It’s been selling off all this property in the last couple years–more shock doctrine wealth transfers.
Just because some countries had reasonably good oversight for lending in their own country, that did not prevent them from playing at the Irish debt casino tables by establishing branches in Ireland that could take advantage of the complete lack of regulation and the spineless Irish politicians and citizenry who seem only to willing to do whatever their European masters request.
Bernanke, Geithner, Paulson, Bush and Obama, Fed senior Staff, advisors, consultants, lawyers, etc.,should all have been impeached or otherwise charged or at minimum fired for their handling of what amounted to the greatest extortion of public money by private looters in history. Not going after all these clowns was itself criminal. There’s no shortage of grounds, either.
Hi all nakedcapitalism posters, commenters and readers,
When I read these comments, I really that there is now some common platform among the kind of “liberals” (à la US) and Austrian-based savers (quite a number of them are not really that rich. Small business, pensioners or just consumption-conscious citizen with a bias towards savings, are they that “politically incorrect”? They just happen to not belong to the list of those with a stake in the current system, banking, globalized corporations or some sort of state.
I understand that to some here, a monetary system à la MMT is some sort of alternative for governments to fund public spending and taxation especially when it comes to basic social security covering… But more than anything, it is a way for government to fund illegitimate wars and fund a host of capitalists who make XIXth and early XXth century rapacious financiers now look like mother Theresa-s.
As long as I can certainly adhere to Piketty work – no problem with that as a continental Austrian psyche à la Eucken or Röpke – I feel that liberals should pay a serious look what the insane monetary system is driving to in terms of capital distribution:
This madly volatile monetary system is bringing down the middle class! More effectively and more surely than any exploitative class scheme à la Karl Marx. Volatilily is your friend indeed, dear capitalist.
MMT is not a monetary system that the MMT proponents are calling to have put in place. MMT is a description of the monetary system we have NOW, in the US and in other “fiat currency issuers”, which are governments that issue their own currency. So that includes Canada, South Africa, Brazil, the Eurozone, Sweden, China, Japan, Australia, Mexico, etc. The noteworthy exceptions are governmental units that are subordinate to a currency issues, like state governments in the US and nations like Germany, France and Greece in the eurozone.
In the US, we choose not to operate as a sovereign currency issuer because we choose to issue bonds to finance deficits. Bonds are actually useful to investors (look at the importance of the Treasury market in setting benchmark rates) but the US does not operationally need to issue bonds. It like any other currency issuer can simply deficit spend.
The MMT people also warn that there are risks to deficit spending, that you can create too much inflation. But with high unemployment now and a lot of slack in the economy, we are a long way away from that being a risk.
As to financing unending wars, we seem to do a pretty good job of that regardless, so I have trouble understanding why that is perceived to be the issue.
This time it’s different. This time the “Fed’s” own balance sheet is a bubble at five times its historic high. This is what Doug Nolan calls “the granddaddy of all bubbles”. This time, there won’t be containment.
From John Hussman, “We learn from history that we do not learn from history.” (Georg Wilhelm Friedrich Hegel). There have been no substantive structural changes, no more regulatory rigor, no fraud prosecutions, only suspension of accouting standards and staggering QE beyond any historic precedent, worldwide. Hussman:
“… the historical evidence suggests that once overvalued,overbought, overbullish conditionsbecome as extreme as they are today, it’s advisable to panic before everyone else does.”
Is it remotely possible that these people really don’t know what they’re doing, or is this the final Shock Doctrine phase of disaster capitalism?
Great comment, Doug.
Grantham and Faber have both also commented that the next bust is going to be of a different order because of the Fed’s massive balance sheet and continuing ZIRP. What’s left to throw at a downturn? $15 trillion in QE?
I’ve said for years that the Fed’s M.O. is that the only solution for a burst bubble is a new, BIGGER bubble. I think they’re so deep in the weeds of econometrics and their neo-liberal narrative that they do NOT, in fact, know what they are doing, because they don’t see reality.
It’s kinda scary.
According to its current H.4.1 report, the Federal Reserve increased its balance sheet (“Total factors supplying reserve funds”) by 27.3% in the past 12 months.
The M1 money supply is growing at accelerating double-digit rates over the past 12, 6 and 3 months:
Prudent? Not really. More like a central bankster chugging contest using shots of acid-spiked Kool-Aid.
“…using shots of acid-spiked Kool-Aid.”
If only they would….
In 2008 the finance oligarchs pulled a gun on the political system and told it to give them the keys of the Kingdom. This was a political effort not a question of failed markets–the markets were rigged, in my view, to fail as some knew years before the crash. All you had to do was to use a little logic to know that the system was going to crack (if you understood what derivatives and liars loans were).
Whatever it is that is going on with the Fed it is all mystery to us–the governors are servants going in and out of the Big Room where the high rollers do what they do and what they do we don’t know and aren’t going to know anytime soon–think the movie Eyes Wide-Shut which was Kubrick’s gift to us all–he made it very clear this is what he saw and what I see but probably not anywhere as clearly as he did. I just don’t see a crash coming at this point no matter what the number say. What I do see is normal people losing their dignity and hopes as their income continue to slide just enough to make them scared (and continue to mind their bosses) but not enough to demand change. We will have a soft-landing–it’s called feudalism.
I panicked last year, thinking I was being prudent, but the market went up 30% instead. Now I’m really panicking. What now?
The way to think about this is to think “What’s the maximum amount of profits corporations could make without exporting to other planets?” You have to do business on earth. That’s the only constraint. That’s an interesting question if you think about it cogently, as it implies all sorts of ideas about social order and organization.
But if you just want to think about it like me, shallowly, quickly, in a few thoughtless seconds, in order to get a number you can use in a sterile equation, then work backwards to what’s reasonable, then you put a PE on it or do a DDM analysis — I get a DJIA level someplace between 5,000 and 40,000 sometime between now and 2039. Then you have to ask yourself, before you throw your money at something, “Do I feel lucky?”
For me, now, the answer is “No. I don’t. Whatever I do will lose me money.” That seems mathematically impossible, since something has to be right, but if it is, the timing will be wrong. There is no doubt in my mind. It makes it hard,
Your second paragraph is the way Ben Inkster at GMO thinks about it, Craazy. Which is why they believe in the mean reversion of corporate profits: it’s a lil counter-intuitive to think that people will willingly vote for their descent into serfdom.
The timing, alas, is tricky. I’ve learned that bubbles always get bigger and go on longer than sane people think possible. This one is proving to be no exception.
Inker, not Inkster. Sorry Ben!
‘Almost 50 years ago, historian Paul Hair attempted a similarly sweeping survey. Using coroners’ records and other sources, he suggested that the likelihood someone in England would meet a violent end has remained broadly constant for seven centuries. “The axe of the drinking companion and the neighbour’s open well were regulated, to be replaced by unruly horses and unbridged streams; when these were brought under control it was the turn of unfenced industrial machinery and unsignalled locomotives: today we battle with the drinking driver,” he wrote.
I often refer to Hair’s work in illustrating the problem economists call moral hazard. If people are protected against risk, they will take more of it. ‘
And the closing para:
‘Policy towards risk in the financial sector needs to learn both lessons. If creditors are protected from risk, the long-term effect will be more risk in the system, not less. And the policies that will prove effective in managing risks will be policies that financial services firms design for themselves. They need much stronger incentives to do so.’
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”
The FED, by its own admission, admits it has failed to induce inflation (that’s their opinion – I think they have inflated the stock market substantially….)
We remain in …uh, was either Iraq or Afghanistan a declared war??? Well, war or police action or protecting the peace, what ever it is, its not enough to stimulate the economy. The government did try to expand the war (or protecting the peace, defending the homeland) type stimulus with Libya,, Syria, Ukraine, and I am sure the US will be able to get ourselves involved in some altercation somewhere – either to stimulate the economy or distract the population….or both.
‘This time around, the bubbles have far outgrown those of yore. Yet the Fed is still printing money. And raising interest rates just a tiny bit won’t even be discussed seriously until next year.’
It’s 2004-2006 all over again. (Maybe the year-end digits will even match.) First, they waited too late to ‘normalize’ negative real rates. Then they did it too slowly. Then they went too far (an unprecedented more-than-quintupling of the Fed funds rate), and crashed Bubble II.
Forget about quintupling this time. Even a quarter point hike, divided by zero, equals infinity. Maff, oy!
What’s likely to shock the Fedsters this time round is that their first couple of rate hikes will be like firing a BB gun at a drunken elephant — no effect. Then, with their characteristic blindness to time lags, they’ll carry on hiking till the yield curve inverts (as improbable as that may sound today) and some hinky credit sector (junk bonds?) crashes to earth, throwing the usual sampling of brain-dead banksters into fresh crisis.
Lord help the retarded.
The current military-financial-industrial elite is so entrenched and devoted to sociopathic self aggrandizement that there can’t be any change in this until it’s beyond unsustainable; until there’s nothing left to loot and no one left to lie to. Then we can assume an authoritarian military government will be imposed and the poor can look forward to even more open brutalization and dissent such as that seen on this forum will become impossible. Wow! I’m a real ray of sunshine.
How amazing it is that the same group you allow to counterfeit the currency end up being some of the wealthiest people in the land.
Bankers must truly believe that we are complete idiots.
Well, look at the people we keep voting for. It’s pretty clear to me that the bankers are correct about most of us.
Having traded government bonds through the last tightening through today, I can tell you I could not have analyzed the last tightening any better. The perfectly telegraphed tightening cycle (now called forward guidance) collapsed the forward interest rate curve and kept the long term rates from rising. Greenspan could not understand the conundrum (even though the Boston Fed was putting out papers that showed exactly that). Bernanke understands how they collapsed the term premium. that is how they did it this time around. what they are unable to bring themselves to admit to is that they have fostered too much risk taking. Yellen will ensure it all blows up again. And if we have a currency crisis, we can all say good bye to our living standards here. The Fed is the only central bank that does not care about the currency they control. Or worse, consider it a free lunch to abuse their reserve currency status.
Ask yourselves this, if Bernanke/Yellen were the central bankers in another crisis ridden country with a banking crisis – could they have done what they did? Mr. Bernanke, you preach to Raghuram Rajan but could you implement your ZIRP/QE as the governor of RBI? Yeah right.