Funny? The word is “scary!” Please read the following from the FOMC minutes of Sept. 2008:
MR. WARSH. I think the sentiment we are trying to suggest is watchful waiting. We are not indifferent, we are not clueless, we are paying attention, but we are not predisposed. Hence, Governor Kohn’s suggestion.
MR. KOHN. My suggestion was to substitute “carefully” for “closely.” I agree that “monitor closely” had this other connotation, but I think we should be seen as paying more attention than usual. There might be another alternative.
MR. DUDLEY. “The Committee will carefully evaluate economic and financial market developments.” That means you are on the case.
CHAIRMAN BERNANKE. Well, it is not an analytical thing we are doing. We are just watching closely.
MR. WARSH. Keenly? Carefully?
MR. LACKER. Mr. Chairman?
CHAIRMAN BERNANKE. Yes. President Lacker.
MR. LACKER. Including “closely,” what does that imply about the opposite? I mean, are we going to be able to take that out?
MR. WARSH. Well, we have done things like “in a timely manner” and other kinds of phraseology.
MR. LACKER. Yes, but this is an adjective.
CHAIRMAN BERNANKE. No, it’s an adverb.
MR. LACKER. There goes my credibility. [Laughter]
So there you have it, Federal Reserve meetings are not boring cigar smoke filled meetings of a bunch of stodgy old men (and woman), no, they actually have fun! They apparently poke fun at each other similar to a bunch of farmers and ranchers hanging out at a beer joint in some “40 mile town” (they are called 40 mile towns because that is about the furthest a horse could go each day) in Texas.
But wait, did you notice that this was September of 2008? September 16th to be exact. Do you remember what was going on then? Lehman Bros. formally filed for bankruptcy the day before on Sept. 15th. Just 2 or 3 weeks prior to this, things were bad and looking worse but anyone who had forecast that a firm as large and as important as Lehman would actually “file” would have been laughed out of town. Even though Bear Stearns had already gone down a year earlier (they were “saved” by JP Morgan), the actual bankruptcy of a major player in “derivatives” was inconceivable.
So here they were just one day after Lehman blew up (making any and all derivatives worthless, and still are) arguing over “adverbs and adjectives.” Aren’t they supposed to be “money people?” Rome was clearly on fire and yet “levity” was the banter. Years ago and some of you may not even remember this, the Fed never made “statements.” They did what they did and either added or subtracted reserves, it was up to “Fed watchers” to figure out what they were actually doing. Whether they were tightening, loosening, raising rates or lowering rates…it was all on the hush hush, if you could figure out what they were doing, you could make money. Then along came the press releases and conferences to “spoon feed” us.
I add in the “spoon fed” part because if you read the discussion of the statement closely, they believed that their words were VERY important. “Important” as in one word is soothing while another could cause a panic while a third could be used but troublesome to withdraw. Do you see where I’m going? Words? “Verbal suasion?” This is where we were 5 years ago, we are further down the rabbit hole now because leverage (ours, theirs and the Treasury’s) is so much greater and the foundation that is much more fragile. It was all about confidence then and even more so now.
“Confidence” is THE only thing left and the latest TIC figures (and Fed purchases of debt) show that the confidence is waning. Foreigners have really cut back their funding of our largesse…one can only wonder what is going on within the current FOMC meetings nowadays? Are they still cracking jokes? Are they panicking? Are they clueless? Seriously, I cannot even imagine what is being said, the choices for “words” must now be so limited because they have cornered themselves. They want to retain credibility so they must taper…but they cannot because there are no other buyers…but they cannot keep purchasing at the current pace because they are eating up too much collateral and not leaving enough for the shadow banking system to lend against to “reflate”…but they have to reflate so they must buy more and the Treasury must increase the deficit.
“Rambling” on my part? No, the analogy is someone with a noose around their neck that gets tighter any time that they move. It’s already tight enough to slow blood flow to the brain and create wooziness…so it’s either die slowly from passing out or struggle and the noose tightens even further and immediate death results. They have backed themselves into a corner of their own making and the options available are “none.” “Words” in the past may have worked but it’s almost as if they don’t even matter now. After each Fed meeting, investors hold their breath to see what the Fed has to say. I believe that after one of these “statements” in this year of 2014, the markets will go “off the reservation” all on their own. Will it be because the Fed “chose” the wrong word, wording or “type” of word? No, I doubt it. They can only substitute “perception” so far until the actual reality that investors see, feel and experience overwhelm the “Goebbels effect.”
I honestly did not think that we could have made it this far, we did. “We did” this through the use of words, propaganda, false reporting, the creation of free money and “making” markets (asset prices) through the manipulation of all markets. This will not stand as “broke is broke,” spending at the “street level” is collapsing as evidenced by retail sales (Walmart), auto sales, housing etc., even luxury sales have been affected. The top .1% has become richer but they cannot carry a gutted economy all by themselves and no amount of “words” can change this.