Thursday, February 21, 2013

US Fed : Republican End-Run

Andre Willers
21 Feb 2013
US Conservatives have by-passed Congress and focussed on the Federal Reserve Governors. Dissent here destabilizes the Quantitive Easing effects on Stock Markets . It shuts the taps on the bubble . Exactly what they want .

Discussion :
“As stipulated by the Banking Act of 1935, the President appoints the seven members of the Board of Governors of the Federal Reserve System; they must then be confirmed by the Senate and serve for 14 years.[2] Once appointed, Governors may not be removed from office for their policy opinions. “
“Bernanke's second term ends on January 31, 2014.”


The current members of the Board of Governors are as follows:[8]
At least three are Conservatively inclined . Look at expiry dates .
Only one swing vote is required . (Note fluctuation of E.A.Duke .Her absence disturbed the balance of power.)

Commissioner Entered office[9]

Term expires
Ben Bernanke
(Chairman) February 1, 2006 January 31, 2020
January 31, 2014 (as Chairman)
Janet Yellen
(Vice Chairman) October 4, 2010 January 31, 2024
October 4, 2014 (as Vice Chairman)
Jeremy C. Stein
May 30, 2012 January 31, 2018
Elizabeth A. Duke
August 5, 2008 January 31, 2012
Daniel Tarullo
January 28, 2009 January 31, 2022
Sarah Bloom Raskin
October 4, 2010 January 31, 2016
Jerome H. Powell
May, 2012 January 31, 2014

3.What is going on ?
Somebody really smart has done an Oblique Approach attack .
He yielded on the Congress flank (granting Credit-Ceiling extension ) , then hammered on the institutional flank (The Fed) actually doing the printing of money (Quantitive Easing) . Complete surprise was achieved . The risk-averse panic and flee . The flanks are rolled up and the pursuit ensues .
Few prisoners are taken .
This is happening now (05h14 2013/02/21 GMT) .
Stock markets are sharply correcting as that future income stream of $84Bn per month Quantitive Easing becomes much more uncertain .
This is enough to make the faint-hearted flee.

4.Some did get uneasy :
The Germans are still hypersensitive to hyper-inflation .

5. I got suckered , too .
I expected another bruising battle on the Congress front .
So , the correction is occurring , but not in the way I thought .

6. How does it work ?
All they have to is induce an uncertainty > 28%
Look at the Seven Governor voting decision table below .
1/7 = 14.3%
2/7= 28.6%
3/7= 42.9%
4/7= 57.7%
5/7= 71.4%
6/7= 85.7%
7/7= 100%
To destabilise the system , all you need are 2/7 supporters and one maybe . This exceeds reserves .
Since this system determines the Quantitive Easing , ($84Bn/per month) , any uncertainty here gets magnified as all those little computer programs in the futures markets get busy discounting .
But notice , this uncertainty is not Beth(0) (ie like flipping a coin) .
What is happening is that a lot of traders went out on a limb using computer systems they do not understand .
The uncertainty shift is from 28.6% to 42.9% . Black-Scholes systems cannot handle this abrupt discontinuity .

They might not lose their shirts , but the male bra might make an abrupt reappearance .

7.Strategic Surprise .
This was a major strategic surprise .
DARPA mission statement : “To create or prevent strategic surprise”
DARPA seems to have decided that the USA does not need to subsidise all the planet’s fat cats .
See “Fracking” , “Reshoring” , etc .
Expect more strategic surprises .
(Fracking was a DARPA project . )
Why should DARPA suddenly play a more active role ?
Because they have come into competition with those sincerest of admirers , competitors .
To maintain their mission statement , they have to start intervening in internal USA affairs .
The clunky and gridlocked US state needs a swift kick on the behind if they do not want to end up speaking Chinese .
And stopping funding your main competitors is high on this list .

8. What does all this yakkity-yak mean ?
The USA intends to restore it’s energy , manufacturing and financial bases .
8.1 Energy : Fracking .
8.2 Manufacturing : Reshoring
8.3 Financial : Happening as we speak . Stop funding losers .
DARPA is only one of it’s agencies .
It is a large , smart system going into the singularity .
I cannot compete . Apart from the large databases , there are ripple-effects of workable mind-computer interfaces .
And persons who are as smart or smarter than I am .
9. So what is a poor small investor to do ?
Cash , or US Treasuries . Shares and properties are about to go into a prolonged period of instability . You can’t win , but at least you will lose the least possible .

10 .Societies :
There are only degrees of winners . But there are definite losers . The societies being propped up by the USA will lose heavily .
This is most of Europe , China , India , Korea . All the US clients will find their markets drying up and capital being withdrawn .
Big mark-ups will disappear to about 2%-3% . Actually , below the wealth-growth rate . Competition . This is happening now.

11.Growth rates slow to match reduced population growth rates .
12.Corollary : There is more resources for Blue-Sky research . The system gets richer much faster than population decreases .
Cf Chinese One-child system .

Interesting times .

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