Here we go - inflation

Fed "Confidence" Sandbaggers Out Again
Sandbagging up around the doors, of course, as the water continues to rise.

What am I referring to? This:

I remind you that "1" is 0.1%. So 0.1 is 0.01% interest in the 13-week T-bill, and 0.05 is 0.005%.

0.05, incidentally, is the all-time low on that gauge, hit in the middle of the disaster at the end of 2008.

We're back there this morning.

Why is this related to The Fed and the "sandbaggers" around the door?

Because the water is rising rapidly around The Fed; their credibility on being able to control liquidity effectively and manage to "withdraw" from their extraordinary actions is being directly threatened by the market.

Remember folks, just to pull back to the previous 0.25% short-term interest rates - a "hike" of just one quarter of one percent - The Fed would have to sell off somewhere approaching one trillion from their balance sheet.

The problem with such an action is that while the short end of the curve would move to their "target" the long end would almost-certainly skyrocket, instantaneously destroying what is left of the housing market and severely damaging the ability of the government to sell debt.

I know what the retorts will be - "The Fed can pay interest on reserves." Well, they're doing that now. How's that "management" working out when the IRX is in total collapse? If they wanted to "manage" this process why haven't they "managed" to stop it?

There are two possibilities: Either the market is sussing out extremely serious upcoming events that are on the same scale as the collapse of 2008 or The Fed is about to lose control of the interest rate curve.

I believe Bernanke's hand is about to get forced, and when it happens I hope you have your seatbelt fastened securely low across your hips.

You're going to need it.