The Fed Wants to Twist Again, Until the Election

Topher Morrison

PurpleSerf.com

Fed Chairman Ben Bernanke and the Federal Open Market Committee.

The once arcane strategy – “Operation Twist” – is evidently becoming a trusty financial tool as much as a screwdriver is to a repairman.  The Federal Open Market Committee (FOMC), charged with overseeing the buying and selling of US Treasury securities, is to meet this week and it looks like another round of Operation Twist is on the table.  The FOMC’s decision whether to inject more liquidity into US markets, in an attempt to inoculate them from European debt crisis, or proceed with other more temperate measures will help influence the financial trajectory of America and with it the rest of the planet for the remainder of the year and beyond.

Operation Twist, selling short-term treasuries in order to buy longer term ones in an effort to bring down long-term yields, is one of many tools available to the Federal Reserve.  In general it is more palatable than firing up the printing presses or plugging fresh zeros into the digital currency supply and then purchasing billions (or potentially trillions) in assets, which is how quantitative easing (QE) is employed and what the Wall Street Oligarchy and Gold Bugs hope occurs.  It may, for the time being, be sufficient for markets to feel the Fed is doing something and therefore Twist 2.0 may be just the ticket.

In previous rounds of QE benefits were double edged, as one can never fool the markets. There was ‘good’ inflation (high prices for equities, corporate bonds, remember: will the Dow hit record high in 2011?) making the rich richer, so to speak, and then there was the collateral damage – ‘bad’ inflation via surging commodity prices – making the poor poorer.  This is of course how the Fed steals for the 1% and the logic, which explains how the Fed triggered the Arab Spring.

While both QE1 and QE2 became intensely controversial Operation Twist, aside from the dubious name, looks to become the preferred method of intervention.  Forbes reports on the upcoming FOMC meeting with regard to the latest limping economic numbers:

“Barclays Capital called Operation Twist ‘the most likely outcome,’ saying it would give the Fed more time to sort out whether recent softness in data is mainly ‘payback’ for hiring during a warm winter or a more prolonged slowdown. ‘If the latter is the case, then more outright asset purchases that expand the balance sheet (QE3) would become likely,’ Barclays said.”

To be sure, as the frequency of crises increase moves like Operation Twist allow the financial engineers to manipulate the economy without having to deal with the underlying causes of addicting entitlements, long term debt and growing corporate malfeasance (got Zucked lately?) and without addressing public concern over persistent and reckless intervention.  But again, nothing changes, Operation Twist is a shell game as much as everything else the Fed attempts. 

The political calculation here, however, is important.  Should Ben “Bubbles” Bernanke go on a printing spree, say by injecting a cool $500 billion, look for Obama to win in November.  If the Fed doesn’t it may harm him according to Gary Dorsch writing for Seeking Alpha:

“Without the artificial life support of QE3, the U.S. stock market could sink ahead of the upcoming election and torpedo Mr Obama's chances. On the other hand, a $500 billion printing operation could lift the Dow Industrial above the May 1st highs, and tilt public opinion in favor of the president over his Republican challenger.”

This would undoubtedly raise Republican ire like no state recognized gay marriage or stimulus bill could and would likely fuel a harder line conservative (sound money anyone?) to take place of a lukewarm Romney in 2016.  The Federal Reserve doesn’t like attention and especially the pesky kind from sound money conservatives like Ron Paul.  Not doing anything that would help Obama will sap any animosity a resurgent and victorious GOP harbors for the Fed in November.

The alternative is of course, Twist 2.0 or perhaps another series of secret European loans or some derivative thereof.   If the Federal Reserve can lay the economic turmoil entirely on Barack Obama’s doormat, which Republicans will happily aid, Ben Bernanke and crew are as usual in the clear.  Suffice it to say that has always been the magic of the Federal Reserve – out of sight and out of mind of the electorate.

Escape from EU: Rise of the 4th Reich

Topher Morrison

PurpleSerf.com

Where is Snake Plissken when you need him?  Greece is in shambles.  Spain is on the brink and the planet is on the verge of realizing it never recovered from the last recession.  Japan evidently already realizes it as Tokyo’s stock market hit a 28-year-low today, New York will undoubtedly react.  While some in Europe are rallying jittery technocrats to centralize and unite, reason urges otherwise.

The New York Times reports:

“Mario Monti of Italy called for using euro bonds to create a quicker path to common debt for Europe. And Mariano Rajoy of Spain floated the idea of a common fiscal authority in Europe to synchronize budgets and manage debts.

German policy makers have said that kind of deeper budget integration and supervision is a prerequisite before any sort of euro bonds could be issued.”

This process, to embolden Brussles, is estimated to take between five and ten years, but the wonderful thing about a crisis is its ability to motivate.  To be sure, whatever happens will happen soon.  George Soros predicts three months and Joschka Fischer, Germany’s former vice-Chancellor, gives EU leaders two weeks to save the project.

Either the EU will crumble beginning with Greece’s departure on June 17^th after their elections and return to the Drachma (test trading since last week) or a more powerful central government in Europe will emerge.

If this sounds a bit scary it should.  Spain’s Rajoy urged the 17-nation union to “cede more sovereignty” to a central fiscal authority and parroted the European Commission’s call for a banking union with a single regulator and deposit guarantee fund.  Joining the pro union chorus is also new French Finance Minister Pierre Moscovici: “We need to go toward a banking union,” he said on RTL radio.  With that the socialists are officially on board in Paris.  The thing is who has the money to put where their mouth is?  Not Rajoy.  Not Monti.  Maybe Moscovici, but Germany on the other hand…

Given the current crisis Soros sees a possible 4^th Reich ahead, “a German empire with the periphery as the hinterland,” he said.  While CNBC says this was a “warn[ing]” from Soros his statements clearly suggest he wrestles with little misgivings on the prospect.

With northern creditor nations bailing out ailing Spain and Greece, Germany is effectively at the helm and Soros knows it.  “We need to do whatever we can to convince Germany to show leadership and preserve the European Union…the future of Europe depends on it,” said Soros, reports Bloomberg News.

If you listened to Mosocovici the entire planet depends on what happens in Europe and therefore how Germany plans its next move. “Let’s not delude ourselves: If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced,” he said, reports The Daily Telegaph.

In a way he might be right, the world is walking a tight rope finer than frogs hair.  US employment numbers are wilting, a fact Obama “lays at the feet of European leaders.”  Brazil, China and India all see anemic growth.  Iran has been writhing in hyperinflation since at least January with fresh sanctions taking their effect at the beginning of the month and the rest of Middle East on perpetual red alert with Syria in the throws of civil war.  To top it all off the first world isn’t setting any kind of example. The OECD club is at a record average public debt of 106% of GDP and the red flags in bond markets couldn’t be raised higher:

“German 10-year Bund yields closed at 1.17pc. The two-year notes turned negative. British Gilts closed at 1.53pc, the lowest in 300 years. US Treasuries fell to 1.45pc, lower than at any time during the Great Depression.”

Greece is aflame with persistent protests, Cyprus isn’t looking good, neither is Portugal and Italy’s ex-premier Silvio Berlusconi claims his “people are in shock.  Confidence has collapsed. [And they] have never had such a dark future.”  The Daily Telegraph’s Ambro Seevans Pritchard agrees:

“Indeed, the jobless rate for [Italian] youth has jumped from 27pc to 35pc in a year. Terrorism has returned. Anarchists knee-capped the head of Ansaldo Nucleare last month [and] Italy’s tax office chief was nearly blinded by a letter bomb.”

If the real politik lesson holds – let not crisis go to waste – who will pass this global opportunity up?

Should history provide us prologue as it often does.  This is exactly the time when the fearful and insecure turn to anything for security.  With these nations biting their nails strength will need to come from somewhere, lets hope it comes from independence not unity.  Perhaps this is a time when Germany should exit, followed shortly by France and allow the EU to stand on its own for what it is, “a valueless and physically unattractive monument to the hubris of bureaucrats who valued an economic ‘system’ over any actual economies,” writes Tim Cavanaugh of Reason.

The European experiment has failed.  Attempting to prolong the endeavor will only beget more crises down the road.  Individual states should stand on their own, go through the necessary withdrawals and kick the bailout addiction and let the pusher banks sucker some other region.  Let not your hearts be troubled, if the euro is destroyed it will be scary, but we’ll all be the better for it.

It is interesting to note, however, with all the buzz talk about the zombie apocalypse and 2012 how fitting it would be to see Germany’s Angela Merkel leading her zombie states army into perpetual debt slavery.

Nervous Breakdown? 21 Signs That Something Big Is About To Happen In The Financial World

The Economic Collapse
September 9th, 2011

Image Source: TheEconomicCollapse

          Will global financial markets reach a breaking point during the month of October?  Right now there are all kinds of signs that the financial world is about to experience a nervous breakdown.  Massive amounts of investor money is being pulled out of the stock market and mammoth bets are being made against the S&P 500 in October.  The European debt crisis continues to grow even worse and weird financial moves are being made all over the globe.  Does all of this unusual activity indicate that something big is about to happen?  Let's hope not.  But historically, the biggest stock market crashes have tended to happen in the fall.  So are we on the verge of a "Black October"?

The following are 21 signs that something big is about to happen in the financial world and that global financial markets are on the verge of a nervous breakdown....

#1 We are seeing an amazing number of bets against the S&P 500 right now.  According to CNN, the number of bets against the S&P 500 rose to the highest level in a year last month.  But that was nothing compared to what we are seeing for October.  The number of bets against the S&P 500 for the month of October is absolutely astounding.  Somebody is going to make a monstrous amount of money if there is a stock market crash next month.

#2 Investors are pulling a huge amount of money out of stocks right now.  Do they know something that we don't?  The following is from a report in the Financial Post....

Read the rest of The Economic Collapse Blog's story.