Words

[Jorma]

It is a mistake Doc to think that the Fed believes its own words. They are highly constrained as is anyone in the political sphere from using negative words for fear of hurting confidence. The always err on the side of the most rosy scenario in the firm belief that words alone influence results. They are correct probably to some extent. To the extent people so expect the words to be rosy any other words would be a revolution

 

Governments and institutions always choose the rosy scenario and people expect such. If there was a sudden outbreak of simple honesty like saying we are uncertain of the future GDP over the next year but think a range of +3% to -2%, the markets would collapse. People jumping out of windows, wailing and rending their clothes, dogs and cats living together. Nobody is ready for the truth, from institutions, government or corporate. They do not want the truth, deep down. As the man in the movie said, "you can't handle the fornicateing truth".

[Jorma]

Here is an example of how the Feds words are understood and treated by the mainstream press. Back on July 8 Washington Post reporter Neil Irwin wrote a much commented on story about how the Fed is considering changing policy. For our purposes here is the money quote

 

One pro-growth strategy would be to strengthen language in Fed policy statements that the central bank's interest rate target is likely to remain "exceptionally low" for an "extended period." The policymakers could change that wording to effectively commit to keeping rates near zero for even longer than investors now expect, perhaps adding specifics about which economic conditions would lead them to raise rates. Such a move would be opposed by many members of the Fed policymaking committee who are wary of the "extended period" language, arguing that it limits their flexibility.

 

http://www.washingtonpost.com/wp-dyn/content/article/2010/07/07/AR2010070705100.html

 

Well I wrote to him and asked about how words were supposed to be policy.

 

 

Did it occur to you in writing the 7/8/10 Wonkbook story how bizarre it is to openly discuss how a few tiny changes in the Feds words are considered a policy? To even then discuss how the words are supposed to manipulate expectations? I suppose it might seem so normal from your seat. From mine it is a discussion about not only propaganda but an actual discussion about how the propaganda is supposed to work. You apparently there to help as best you can by treating such BS with complete respect.

 

Well it is just my opinion but you can forget about the words, such is savvy gone round the bend. Soon enough it is going to be "show me the money" time again for the financial sphere. That's where the story is going to be.

 

To which he was nice enough to reply.

 

In the context of Fed policymaking, words matter, but mainly because they convey information about what the future path of monetary policy will be. When they say that rates will stay low for an "extended period," that's not mere words, but essentially a promise to run an accommodative monetary policy--essentially printing a lot of money--for quite some time to come. It thus can have an immediate impact on market interest rates and thereby stimulate economic activity immediately.

 

For a more dramatic parallel, if the Pentagon were to say "If X country does Y, we will invade," it may technically be just words, but the words carry actual substance and are likely to influence events on the ground.

 

Thank you for writing.

 

There you have it. He says the words mean something, printing, which is in fact the total opposite of what is occurring at this very moment with the Feds balance sheet shrinking, if ever so slightly. Not to mention the boilerplate about lower interest rates "stimulating economic activity"

 

This stuff is complicated but important to me anyway. It's all down the rabbit hole stuff as far as I am concerned. I don't think the Fed believes it's words but our press corp does and then most everyone else. Or maybe they pretend to believe because they want to believe. Or pick any other various interpretations of the psychology that drives the beliefs of people about complex issues totally outside their control.

[capitall]

Good points. What has gotten the most mention, or the most press, of anything a Fed Head ever said? And why? And how did it influence folks? My vote for one possible answer to this question is Helo Ben's "helicopter" statement, and I think it gave people (unwarranted) confidence in the markets and they acted accordingly. And this is how Ben got his nickname of Helo Ben, which should probably be trademarked as belonging to capitalstool, as I think it began here.

 

One reason why it was particularly effective is that it was visual-- one picture being worth a thousand words, as the ancient Chinese saying goes. And of course it immediately got converted into cartoons for people to look at and laugh at, but also to take in the meaning of.

 

Of course, it is quite possible for the Fed to go to extremes in believing that words are actions, in cases where words quite clearly are not particularly helpful, and actual action is what is needed in the situation.

[DrStool]

The always err on the side of the most rosy scenario in the firm belief that words alone influence results.

 

Not always. They grossly underestimated the strength of the GDP recovery in 2009. They are quite capable of underestimating lots of things.

 

As for mainstream reporters. They are clueless. They are tools.

 

It's ok for you to disagree with me, but I can assure you that you're wrong. I mean, I know that they lie a lot. But those lies are pretty easy to spot. Most of the time, judging from parsing not their words but their actions, I've come to the conclusion that they believe their own nonsense. The problem is not that they are diabolical. It's that they are clueless. Their models do not work. I've presented evidence time and time again to that effect. If you think otherwise, fine. Show me some evidence and I'll consider it and show me how that renders the idea of watch what they do, not what they say, somehow less relevant.

 

The Fed's words are meaningless. The only thing that matters is what they do, not what they say. The problem is that they DO believe that their words have an impact. But if it were true, would not at least ONE of the 17 board members and district presidents who participated in those surveys have gotten the forecast right at least once. I mean we are talking zero point zero percent here. Every single one of them missed every single forecast. Their words are meaningless. On the other hand, I have chronicled since 2003 the direct correlation between their actions and the behavior of the stock market.

 

I will make the first portion of this report public next week so that non-subscribers can see what they are missing.

[DrStool]

Remember the point I made in last week's podcast about that Washington Post piece. That article was a plant. The reporter is a Fed stooge, and his response to you proves that. I thought you made excellent points. His response was to repeat talking points. I found it very condescending.

 

I spoke to Steven Pearlstein, a big WaPo business columnist, on the phone in February of 2007 to tell him that the real estate crash was just starting, not ending, as he had written based on his conversation with the "experts." He was a condescending jackass who had no farking clue what was going on. All he has is a rolodex full of "names" from industry and academia that he can call on the phone and smoke a cigar with-- an absolute ass hole. That's what it's all about for these creeps--- who ya know, not what you know. They have absolutely zero interest in the facts. It's about going along to get along.

 

The best training I ever had for understanding how the business world and the financial system work had nothing to do with business school. It was the work I did on a master's degree in counseling psych and the juxtaposition of my "field work" of working on Wall Street, and coming to understand the mentality.

 

Because it's all about understanding human nature and crowd psychology. Here's what it boils down to for the made men within the system. "Go along to get along." Group think is always the order of the day. Leadership, courage, imagination, conviction, conscience? None of those things exist in that world. That's why we're where we are.

[capitall]

Remember the point I made in last week's podcast about that Washington Post piece. That article was a plant. The reporter is a Fed stooge, and his response to you proves that. I thought you made excellent points. His response was to repeat talking points. I found it very condescending.

 

I spoke to Steven Pearlstein, a big WaPo business columnist, on the phone in February of 2007 to tell him that the real estate crash was just starting, not ending, as he had written based on his conversation with the "experts." He was a condescending jackass who had no farking clue what was going on. All he has is a rolodex full of "names" from industry and academia that he can call on the phone and smoke a cigar with-- an absolute ass hole. That's what it's all about for these creeps--- who ya know, not what you know. They have absolutely zero interest in the facts. It's about going along to get along.

 

The best training I ever had for understanding how the business world and the financial system work had nothing to do with business school. It was the work I did on a master's degree in counseling psych and the juxtaposition of my "field work" of working on Wall Street, and coming to understand the mentality.

 

Because it's all about understanding human nature and crowd psychology. Here's what it boils down to for the made men within the system. "Go along to get along." Group think is always the order of the day. Leadership, courage, imagination, conviction, conscience? None of those things exist in that world. That's why we're where we are.

 

That makes sense.

 

The problem with most people in positions of power is that they are mostly just like everyone else, except they have power. Most people are clueless about the stock and real estate markets and the economy, or else what happened could not have happened. Seems like people just like that work in news organizations, and at the Fed, and they cling to each other and follow the crowd, hoping the crowd knows something. But the crowd is just a bunch of other folks similar to themselves, who also know nothing. Because they just cling to each other, especially to the people with the most power, because they figure they got that power for a reason. They did get that power for a reason-- because they are good at grabbing power. But they often have put all their focus into finding ways to grab power, not into learning anything constructive to do with power once they get it.

[mdporter]

Fed Tro Lo Lo

 

You guys are going to love this. Absolutely love it. Trust me.

 

After seeing last year's miracle, coordinated stick save, maybe the Fed isn't so stupid. They are a political organization like Congress and acted to save their constituents. After reading many Fed minutes, etc, my reaction to them is that I am reading what they want me to read. Their stuff is exactly like all the other Big Government statistics, pure BS. Congress/Fed will do ANYTHING to save the current system. And they have.

 

The system is "saved" for now but still very sick. The patient requires alot of lying and looking the other way to survive. The new regulations passed this week continue the lying. Trust me when I say this, the average American has no idea what has been happening behind the scenes, does not care, and does not want to discuss it openly because doing so challenges everything they were taught to believe. This applies even to super smart people with PhD's in medicine.

 

They Just Don't Want To Hear It.

 

The sheeple are dumb. They want to lose 50 pounds but stuff their faces every night with potato chips, cheese, and cola. They drink excessively and drug themselves out of their minds. If we're lucky 10% of the population is paying attention and sounding the alarm, but the other 90% just don't give a shit, so we'll continue to muddle through and go down the toilet.

[DrStool]

 

The system is "saved" for now but still very sick.

 

The system was temporarily saved, not because of what the Fed and the government did, but in spite of it. I have clearly shown in my chronicling of the events through that period that the first series of actions the Fed took in 2007 and 2008 made the situation worse. I recognized at that time and loudly broadcast what the likely consequences would be- a crash. And there's no question that the TARP absolutely made things worse because of the impact of nearly a trillion in government borrowing over the space of a couple of months. The conventional wisdom that what the government did saved the system is a fantasy. The combined actions of the Fed and the Administration were directly responsible for precipitating the financial market crash and economic collapse in September-October 2008.

 

In fact, the Fed did not fully realize its mistake until March 2009. It was at that point, when it began to purchase Treasuries from the Primary Dealers, that the thing began to turn around. They were pissing in the dark and they finally hit the target.

 

They are still pissing in the dark.

 

You are correct that they are telling us what they think they should tell us, because they believe that their words actually do something. But that does not change the fact that they have no clue.

 

The mistake that most investors and virtually all pundits make is that they think that these people at the top of the system actually know what they are doing. They don't. They are clueless and delusional. They believe their own delusions of grandeur and power, and that's what causes them to go from one blunder to the next, alternating between under and over reacting. It's a permanent pathology of the power hungry. And they are the people who get to the top.

 

People who are emotionally healthy and wise have no designs on power. Egomaniacs, megalomaniacs, and narcissists are the ones attracted to it, achieve it, and exercise it to the detriment of everyone else.

[Jorma]

I guess I will concede the point. In the broadest sense they don't lie about the rosy scenarios, they believe them. As you well know as one who failed a Dale Carnegie course and is proud of it, being positive in business is not only touted as it's own reward but it is mandated in some sense. When you couldn't be positive enough about certain appraisals your career had a pretty low ceiling.

 

Nobody or few can rise in US institutions, government or private/corporate by being a skeptic. (skepticism can become obsessive too). And of course everyone likes to be part of a consensus. So our money elite like most others have self selected. I don't think that I have heard a single person the last two years who is aligned with institutional power suggest that the economic crisis is structural. Everyone treats it as cyclical.

 

As to the Washington Post it should be viewed as the equivalent of Izvestia. That was the newspaper of the party. It transmitted the official party line to party members. Pravda was the newspaper of the people interpreting and applying the party line. I wrote Irwin a belated follow up about how 'accommodative monetary policy' does not necessarily mean "print a lot of money", but I doubt he will reply. I try not to impinge their motives, most really believe what their experts and insiders tell them. That such is in their self interest probably never occurs to them.

[Rationalize]

A short personal point of view re pissing in the dark.

 

I think clueless-ness may be both relative, and everywhere.

 

The net result of any financial action is actually pretty darn hard to predict.

 

Sometimes the past is repeated, sometimes it's not.

 

Structural changes happen & also, the second time around, sometimes people jump the other way, or front-run the front-running front-runners..

 

Sometimes markets anticipate as material, sometimes they discount as priced in, and always it can be hard to know with any real certainty where prices or even sentiment will move to in advance.

 

No-one is right all the time, while some are right some of the time, and those who are sure they're right are plain dangerous.

 

I guess I'm trying to say that I think there is a lot of clueless-ness -- from depression era studying Phds, to first time day traders.

 

Net net similar results. All pissing in the dark to some degree, but some with more at stake than others.

 

Once one takes action on a view, and commits to a trade or policy, relative clueless-ness can more or less be measured.

[capitall]

The system was temporarily saved, not because of what the Fed and the government did, but in spite of it. I have clearly shown in my chronicling of the events through that period that the first series of actions the Fed took in 2007 and 2008 made the situation worse. I recognized at that time and loudly broadcast what the likely consequences would be- a crash. And there's no question that the TARP absolutely made things worse because of the impact of nearly a trillion in government borrowing over the space of a couple of months. The conventional wisdom that what the government did saved the system is a fantasy. The combined actions of the Fed and the Administration were directly responsible for precipitating the financial market crash and economic collapse in September-October 2008.

 

In fact, the Fed did not fully realize its mistake until March 2009. It was at that point, when it began to purchase Treasuries from the Primary Dealers, that the thing began to turn around. They were pissing in the dark and they finally hit the target.

 

They are still pissing in the dark.

 

You are correct that they are telling us what they think they should tell us, because they believe that their words actually do something. But that does not change the fact that they have no clue.

 

The mistake that most investors and virtually all pundits make is that they think that these people at the top of the system actually know what they are doing. They don't. They are clueless and delusional. They believe their own delusions of grandeur and power, and that's what causes them to go from one blunder to the next, alternating between under and over reacting. It's a permanent pathology of the power hungry. And they are the people who get to the top.

 

People who are emotionally healthy and wise have no designs on power. Egomaniacs, megalomaniacs, and narcissists are the ones attracted to it, achieve it, and exercise it to the detriment of everyone else.

 

All this follow-the-leader go-with-the-crowd behavior is something that evolved in humans who lived in nature in small tribes. And it was fairly obvious if someone knew what they were doing, because they were able to find or kill or grow food, or they weren't. They used tools that cracked nuts or something, or the tools failed to do so. In a tiny simple tribal society living in nature, it is obvious whether a leader, or a group knows what they are doing. And so it is obvious whether or not they are a good role model for surviving and for thriving. The evidence was right in front of your face.

 

But now, in times of huge overpopulation, and complex economic systems, it is easy for the leaders to fake knowing what they are doing, and to "kick the can down the road" so that they don't experience the consequences of their mistakes. Humans are not well adapted to such an environment. Instead of evidence in front of our faces, we get "words" from the Fed. And we get pictures on the TV that are created and interpreted by people who are trying to sell us things or con us.

[stoolbob-brownpants]

All this follow-the-leader go-with-the-crowd behavior is something that evolved in humans who lived in nature in small tribes. And it was fairly obvious if someone knew what they were doing, because they were able to find or kill or grow food, or they weren't. They used tools that cracked nuts or something, or the tools failed to do so. In a tiny simple tribal society living in nature, it is obvious whether a leader, or a group knows what they are doing. And so it is obvious whether or not they are a good role model for surviving and for thriving. The evidence was right in front of your face.

 

But now, in times of huge overpopulation, and complex economic systems, it is easy for the leaders to fake knowing what they are doing, and to "kick the can down the road" so that they don't experience the consequences of their mistakes. Humans are not well adapted to such an environment. Instead of evidence in front of our faces, we get "words" from the Fed. And we get pictures on the TV that are created and interpreted by people who are trying to sell us things or con us.

 

 

To use a stoolific comparison: It's easy to tell when a toilet is full of crap but far more difficult to tell when the accounting books are. The janitor gets fired quickly for failure to perform but the CEO, CFO, COO, ETC, are all still collecting bogus bonuses.

[Jorma]

For all my bashing of the Washington Post today they start an in depth report on Secret America. The ever expanding government/corporate, intelligence/security industrial complex. (Nothing to do with this threads issues.)

 

 

http://projects.washingtonpost.com/top-secret-america/articles/a-hidden-world-growing-beyond-control/

[T_Slim]

After seeing last year's miracle, coordinated stick save, maybe the Fed isn't so stupid. They are a political organization like Congress and acted to save their constituents. After reading many Fed minutes, etc, my reaction to them is that I am reading what they want me to read. Their stuff is exactly like all the other Big Government statistics, pure BS. Congress/Fed will do ANYTHING to save the current system. And they have.

 

The system is "saved" for now but still very sick. The patient requires alot of lying and looking the other way to survive. The new regulations passed this week continue the lying. Trust me when I say this, the average American has no idea what has been happening behind the scenes, does not care, and does not want to discuss it openly because doing so challenges everything they were taught to believe. This applies even to super smart people with PhD's in medicine.

 

They Just Don't Want To Hear It.

 

The sheeple are dumb. They want to lose 50 pounds but stuff their faces every night with potato chips, cheese, and cola. They drink excessively and drug themselves out of their minds. If we're lucky 10% of the population is paying attention and sounding the alarm, but the other 90% just don't give a shit, so we'll continue to muddle through and go down the toilet.

 

I agree 100%. Man, you just nailed how I feel in a nutshell.