The Question No One Will Ask Jerome Powell:
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It’s such an amazing scene from a true cult classic that it hasn’t just become an internet meme, the very image of the Bobs grilling sweaty, fear-ridden Tom Smykowski trying desperately to justify his employment at Initech has become its own hieroglyph. Expertly written, exquisitely acted by all three participants, the display in the movie Office Space is the very modern symbol of how the lazy and derelict would act when finally, brutally confronted with the truth of their sham.

The absurdity builds toward its close with that famous query, what would you say you do here?

If only someone in the voluminous pack of media would ask the same of the Federal Reserve Chairman rather than dutifully, gratefully transcribing his every word and treating each phrase as gospel. For the institution which is thought of by most as an overzealous money printer, egged on constantly by that very media spectacle, they sure do have quite a lot of trouble with monetary shortages.

Conspicuously frequent again.

Between the 1930s and 2007, the world had been curiously free from systemic monetary panic of the kind which before World War II had regularly plagued our economy as much as everyone else’s. It was an island of calm and quiescence, to borrow a term, that sticks out as much today as back when it was unfolding.

We’ll be charitable and just set aside all that nastiness in March 2020, no need to lay that one at the doorstep of the FOMC (though for much of it we really could and perhaps should).

Anyway, would conditions continue to play out as they have over the past months, as markets predicted and are still predicting, it would make twice in fifteen years. From going more than seventy without to suddenly an age where these things happen with alarming frequency, any rational human must first ask, what must have changed?

Policymakers at the Fed - especially one Ben Bernanke - answered it emphatically by claiming at least the latter half of these good times was all their doing. Expert interest rate jiggering combined with excellent communication skills had produced a Great Moderation, an age of unparalleled national and global prosperity.

While that last part was true, put to the test from early in 2007, you’d think the Federal Reserve performed with flying colors. In our 21st century’s darkest hour, who other than Bernanke to execute our rescue?

Quite naturally he rose to the occasion with, well, interest rate jiggering and communications. As far as the latter, just as markets had predicted, once the cutting in the FOMC’s benchmarks began they would follow fast and furiously. A 50-bps reduction in September 2007 was only the beginning.

In one short span in January 2008, Bernanke’s Fed lowered its fed funds target by a total of 125 bps in less than two weeks. Add another 75-bps cut in the aftermath of Bear Stearns, just those together meant two whole percentage points in less than two months.

Those, of course, achieved nothing, at least nothing of value. They were widely recited as powerful stimulus even liquidity yet Bear Stearns happened anyway.

Bear was hardly alone, too, its date with destiny merely overshadowing increasingly dangerous monetary conditions for those outside the bulge bracket. Those aren’t my words, either, they come from a contemporary summation by none other than Bill Dudley, the Fed’s version of Tom Smykowski.

“MR. DUDLEY. Thank you, Mr. Chairman. Financial conditions have worsened considerably in recent days. Credit spreads have widened, equity prices have declined, and market functioning has deteriorated sharply. Although there are many factors that can be cited to explain what we are seeing…we may have entered a new, dangerous phase of the crisis.”

That was March 10, 2008. You’d be forgiven for thinking this right here is the moment when Bernanke’s heroes sprang forward into action. Faced with “a new, dangerous phase” it must’ve been from then forward authorities began pulling the system back from the brink.

But, no. Not just the prior rate cuts, either. From back in December 2007, these “central bankers” conjured up brand new tools to face deteriorating market(s) function(s). More to the point – their true purpose – every time one was unveiled it occasioned a major media release and event, the repeated spectacle.  

On December 12, 2007, the press release said this:

“By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.”

Just nine days later:

“The Federal Reserve intends to conduct biweekly Term Auction Facility (TAF) auctions for as long as necessary to address elevated pressures in short-term funding markets.”

February 1, 2008:

“The Federal Reserve intends to conduct biweekly TAF auctions for as long as necessary to address elevated pressures in short-term funding markets.”

March 11:

“Pressures in some of these markets have recently increased again. We all continue to work together and will take appropriate steps to address those liquidity pressures.”

March 14 (when effectively sealing Bear Stearns’ fate):

“The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system.”

The regular FOMC meeting on March 18:

“Financial markets remain under considerable stress, and the tightening of credit conditions…are likely to weigh on economic growth over the next few quarters.”

I could go on and on with these snippets, one after another after another right on through that summer into September’s Lehman, AIG, Wachovia, etc. Repeated references to the very same troubles over and over.


It can’t be liquidity because, as admitted in the statement on March 18, three months after the tools were put into action, “financial markets remain under considerable stress.” They’d stay stressed for over a year and wreck the global economy in such a major way the world hasn’t yet recovered all this time later.


From the policy perspective there is only one possible answer: the Federal Reserve is not a central bank. Liquidity cannot be within its effective reach. Money printing and supply happens somewhere else. You’ve noticed, too, how officials really don’t want you to know this.

Unlike the media, the markets do know it. While they had priced this fact back then with considerable certainty, these days they’re pricing it even more if you can believe it (you really should).

Money and bond curves have inverted in ways comparable to 2007 and the scenario behind those inversions keeps playing out with one escalation after another. To put it in very simple terms even some at the Federal Reserve might understand, I wrote back in early December about what inversions were really trying to say:

“In purely technical terms, all these together are betting heavily on lower interest rates all over the world in the not-too-distant future. As they’ve come to be this distorted and ugly, formerly aggressive central bankers who’ve been hiking rates as fast as they can are suddenly coming around to that possibility, too…An unhealthy dose of deflationary monetary conditions would aggressively lower growth and inflation while also triggering lower policy rates.”

Unlike 2007 and 2008, Jay Powell’s Fed hasn’t yet realized the full gravity of what’s coming. Even after SVB and Credit Suisse, policymakers at least in public remain committed to the nothing-to-see-here tactic downplaying recent developments. In private, though, they might already be like Bill Dudley pondering what is obviously “a new, dangerous phase of the crisis.”

Does it even matter, though?

This is the reason why officials have to keep inventing new tools as something else goes wrong in the monetary system, as they did just a couple weeks ago with that absurd BTFP. Yet another widely-heralded four-letter invention about to join all the others on the scrap heap. The list of these tools always expands though effective liquidity always gets worse, the most dependable inverse correlation in their kit.

For a system that a decade and a half later has no effective backstop (but does have trillions in excess reserves!) you begin to understand the extreme market positioning. You hedge the hell out of everything knowing the game here. Those at the Fed will say all the right things to a confused and disquieted public if only to quiet the public and prevent it from going too far.

Whether they want them or not isn’t the point. Policymakers always follow the markets.  Rate cuts are coming and when they begin, not unlike 2008 they’re priced to be fast and furious. Whether you look at eurodollar futures or German bunds, these slopes downward more than rival back then.

Because they do, we also have an important answer to the original question. Having taken for granted the island of monetary stability for decades and from the last few of them associated the so-called Greenspan put and all its mysticism for it, “our” Federal Reserve has done us a huge favor by proving beyond all doubt this other truth.

Think about it this way: there were more bank failures in the seventies and eighties than there have been since 2009. Exponentially more. The S&L Crisis saw nearly a third of all savings and thrifts go under, some 1,043 of them out of 3,234 (according to the FDIC) including more than a few big ones. Yet that period is today remembered fondly for its absolute boom, not the depression economics we must handle today.

The very same economics when just one or two potential failures nowadays nearly shuts everything down.

What changed was not the Fed. It’s still doing all the same what it had back then, moving interest rates around and sending out communications with serious-sounding words and phrases. That’s what anyone honest would have to say they do here. As incredible as it still may be to many, when pressed officials claim only to have people skills though for a job that really does require serious and technical proficiency.

If only we could find a couple of Bobs to just end the charade, ruthlessly putting a stop to the scam. To get back to the island means recognizing how we got on it in the first place. After all, financial conditions have worsened and here we are again with liquidity pressures once more elevated.

You won’t have to take my word for it, either. The markets are incredibly sure there’ll be another press release along shortly with those all-too-familiar words on it. 

Jeff Snider is Chief Strategist for Atlas Financial and co-host of the popular Eurodollar University podcast. 

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