Like the donkey, dog, and cat from the Bremen Town Musicians, the blokes over at the WSJ have propped us up on their shoulders so that we can catch a (hopefully insightful) glimpse through the window of the Federal Open Market Committeei circa 2009, back when the proverbial fan was so filled with toxic asset shit that the blades almost stopped entirely.
A couple really rather telling transcript highlights :
VICE CHAIRMAN DUDLEY. …Given that our ability to enact this program is subject to some degree to the Treasury’s coming along with us in a timely fashion, I think it would be better to change “next month” to “later this winter,” which will give us until March 21, giving us a few more weeks. Thank you, Mr. Chairman.
CHAIRMAN BERNANKE. That last thing worries me quite a bit. I don’t know. What did we have in December?
MR. LACKER. “Later this season.”
MR. WARSH. How about “later”? [Laughter]
MR. LACKER. “In the future.”
MR. MADIGAN. Another possibility might be just to say “soon.”
CHAIRMAN BERNANKE. I thought of that as well, but does that satisfy you there, Vice Chairman?
VICE CHAIRMAN DUDLEY. I think “later this winter” does provide an endpoint. I am not sure how long “soon” is.
MR. WARSH. It is always winter somewhere. [Laughter]
MR. LACKER. The word “somewhat” in the first sentence just snags my brain.
CHAIRMAN BERNANKE. We don’t want that. [Laughter]
MR. LACKER. “Somewhat” is great the way we usually use it—you know, somewhat higher, somewhat lower. That is a long and honored tradition in central banking. [Laughter] But “slowing somewhat”—
CHAIRMAN BERNANKE. How about “appears to be somewhat slower”?
MR. LACKER. That would be much more direct.
CHAIRMAN BERNANKE. I guess that pace requires an adjective—appears to be somewhat slower, the pace is slower. Isn’t that right?
MR. LACKER. I am not a good enough writer to know why.
CHAIRMAN BERNANKE. Isn’t that right, Brian? Okay. “The pace of contraction appears to be somewhat slower.”
MR. LACKER. Perfect.
CHAIRMAN BERNANKE. Any grammarians with concerns? You know, this is actually kind of fun here. [Laughter] I have always enjoyed it. Other comments? All right.
Regular comedians, these guys ! Now far be it from me to say that a group of powerful people can’t get together on a regular basis, conduct the day’s business, and have fun doing it (this is the #b-a formula, after all), but the clear and present evidence of legitimate derpage, the tragicii attempts to steer the economic elephantiii they’ve been tasked with reigning in, and their grotesque obsession over little more than PR fluff is revealing of deeply structural problems in America : the land of the free-ish and the home of the brave-talkers.
Now fast forward 6 years to where time-backed Bitcoin exists and there’s nowhere for inflation to hide :
decimation: So prevailing 30 year fixed mortgage rates went from 3.5 to 4.0 in about 2 weeks.iv
mircea_popescu: Clearly desperate bid to reign in inflation.
decimation: And 10 year treasuries went from %2.1 to %2.25 just today.
mircea_popescu: By now every fucking wikipedia entry containing a sum of dollars has to have a “x in 2013 dollars” affixed.v
decimation: All this is because USG released a report that said that 30k more people ‘have jobs’ and wages were flat.
mircea_popescu: No, all this because they’re not stupid, and would like to not hang.
decimation: Which doesn’t mean shit for actual economics but means a lot for the Magic Fed Decision Meter.
mircea_popescu: I’m so curious if next Mulatoo-in-Chief actually finds a Volcker v2.0vi
*: asciilifeform Wonders what the rate would have to be to cut off the chump flow. 100% ? 1000% ?
decimation: The problem is, if you raise rates to the 18% per annum that real estate prices in New York imply, you quickly find that USG is paying all its tax to debtors.
mircea_popescu: Nah, my guess atm is 32%. But as a theoretical, probably impractical solution. Otherwise, 1-2% hikes each quarter for the next 3-5 years would be what a sane CB would do. You don’t mega hike it, you put it on a pain plan.
decimation: What’s a ‘pain plan’? Pay the little people 0% when inflation is well above 10% ?
mircea_popescu: When you tell the slavegirl “Today, you X this much, and tomorrow X+k, and so forth each day X+nk. The only thing you know for sure is that tomorrow’s going to be worse” = pain plan. Pretty much every good computer game ever.
decimation: Heh yeah. Not only will USG be paying all of its tax revenue to debtors, the Fed’s $4.5 trillion worth of 3% mortgages won’t look so good.
mircea_popescu: Yeah well. I’m not a miracle worker, I’m a butcher. I don’t revive dead cows, I just cut them apart.
decimation: ;;calc 18000000000*0.2
decimation: So at 20% rate, USG pays $3.6 trillion in interest per year. Current annual tax revenue is $3.1 trillion.
The only question that remains is whether the “pain plan” is coming “soon” or “somewhat soon” or perhaps even “some winter sometime.”
‘Tis only a matter of when.
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- FOMC is the branch of the US Federal Reserve that determines US monetary policy, that is, the place where it’s decided how much of your wealth will be eroded on a given day, whether or not you’re an American. [↩]
- “Tragic” in the classic theatrical sense, that is, where everyone dies at the end, eg. Romeo & Juliet. [↩]
- From Central banks have no more control over their economies than gnats have over elephants :
You’d also swear that there’s an all-out currency war afoot, with each central bank governor trying to outwit and outlast the others. Of course, behind the veil, there’s really no such thing. All the posturing, all the press conferences, and all the forward guidance in the world, all aiming to shepherd markets higher in a never-ending ascent towards Valhalla, are but smoke. Reach for it, and your hand will feel nothing but air. One gnat with his two little skin pores to bite or not bite can no more steer an elephant to water than can a central bank governor improve his economy. That’s just not how complex systems work. No matter how hard they try.
- I’ve anecdotally observed a similar bump in rates north of the border, though on unsecured lines of credit, which jumped from 5-7%, just like that, with nary a warning, in December 2014. [↩]
- For evidence of exactly this phenomenon, look no further than the art market. [↩]
Volcker served as president of the Federal Reserve Bank of New York from 1975 to 1979, and in 1979 U.S. Pres. Jimmy Carter appointed him to head the Federal Reserve System at a time when inflation in the United States had reached a high of almost 13 percent. Volcker was determined to end chronic high inflation, and under his leadership the Federal Reserve slowed the rapid growth of the money supply and allowed interest rates to rise. These policies caused the most severe recession (1982–83) in the United States since the Great Depression, but inflation was brought firmly under control and thenceforth remained low. Volcker was reappointed to a second four-year term in 1983 and continued his widely praised performance as manager of the money supply and controller of inflation. He declined to accept reappointment to a third term in 1987.