The Market Ticker
Commentary on The Capital Markets- Category [Market Musings]

"Don't fight The Fed"

"The Fed has your back"

Common mantras, right?


How did it work out in 2000, when The Fed was very interested in "tempering" what Greedscam called "irrational exuberance"?  The Fed certainly didn't want a crash -- but it got one.

Or how did it work out in 2008?  The Fed didn't want a crash then either, but it got an even bigger one.

I will remind you that The NY Fed factually knew Lehman was bankrupt well before they filed; this came out in the Valukis report in that they attempted a Tri-Party Repo transaction with Citibank in which Citi rejected their collateral.

Note that a Tri-Party Repo has three parties involved; the third is THE NY FED!

It is therefore only logical to conclude that both Geithner (who was running the NY Fed at the time) and Bernanke were fully aware of exactly what was going to happen for quite some time before it did.

It is also quite logical to conclude that others, including Citi, knew what was going on too.  Gee, that didn't show up in a lot of people shorting Lehman's stock in the weeks leading up to the kaboom, did it?

To the point of this article, however: Did The Fed have your back?

That's twice.

As I pointed out quite some time ago The Fed is not pulling QE because the economy is "roaring"; top-line revenue growth has been awful by any measure over the last couple of years and while the "official" jobless rate is indeed falling grocery and energy prices are up significantly while median family income has been stagnant.

No, The Fed is pulling QE because (1) it doesn't work, exactly as I pointed out it would not because arithmetic doesn't allow it to (and which the Japanese discovered over a decade ago) and (2) laddered fixed-income segments in the market are being progressively destroyed by it.

All compounded growth cycles must end.  They either end by tapering off or they are pushed too far and end catastrophically through systemic collapse.  If you attempt to evade a tapering of the pattern through further exponential expansion by hiding costs and risks then the odds of the catastrophic scenario go up materially and the longer you do so the closer to "1" the odds of that systemic collapse becomes.

We have been attempting to evade the truth on a systemic basis since 1980 and have built up 35 years of economic imbalance.  Twice the system has dislocated only to be "treated" with even more imbalance.

Will we get away with another attempt to do the same thing?

That's the bet you're going to get to place in the next round, and simply on the calendar the fuse appears to have gone inside the box -- nobody knows how much is coiled up in there before it reaches what's in the middle.

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