Published by WallStreetWeather.net
Pluto represents the process of transformation by exposing conditions that have become toxic, corrupted, or decayed so the process of destruction, death, and rebirth can occur. Debt, bonds, mortgages/loans, opaque financial instruments, and insurance are ruled by Pluto. Since Pluto entered Capricorn the sign ruling all types of infrastructures, easy credit and excess leverage turned residential collateral into a toxic mountain of debt. Securitization trusts died from a lack of trust in the warranties underlying those products.
As described in the current and prior week’s Forecasts, Pluto’s energies were pronounced April 1-10 as from Earth’s vantage point it appears to be motionless in the sky as it turned retrograde April 6. Between now and the time Pluto turns direct September 14 marks a time for government to review and reform the failures of the financial system, as well as for the Federal Reserve to adjust its balance sheet to a more normalized $1 trillion from its current $2.2 trillion. Pluto ruling the chart for the time when Pluto turned retrograde in the USA and located in the sector representing the banking system reinforces this.(1)
Since Pluto entered Capricorn in 2008, it has conjoined the Federal Reserve’s natal Sun, opposed natal Pluto in Cancer, and squared the apex of the Fed’s chart representing its reputation. No financial infrastructure was more involved in helping to enable the financial crisis to occur nor more involved to combat it than the Federal Reserve. Yet despite what I have prognosticated(2) about Pluto transforming the purpose and scope of the Federal Reserve and the potential that Ben Bernanke (the Sun) might not remain Chairman, the Fed has thus far emerged from the worst of its Pluto transit perhaps a bit worse for wear around the edges, but relatively unscathed.
President Obama and Congress had the opportunity to work with Pluto’s transformative energies by replacing Bernanke with a Chairman who would acknowledge and learn from the failure of the Greenspan/Bernanke doctrine of “bubble now, mop up later.” Acknowledging this is not a sound policy for long term economic stability. Their adherence to the “wealth effect” – if people “feel” wealthy they will spend and thus boost the economy regardless if they are financially able to do so is reflected by the Fed’s Moon (consumer sentiment) in Pluto-ruled Scorpio. The Moon rules the home which the Greenspan/Bernanke doctrine used as a vehicle for wealth extraction. The home provided the collateral to borrow (Pluto/Scorpio) ever greater amounts of money to spend on consumer discretionary items as long as the home’s unrealized gains continued to increase.
Pluto in Capricorn represents a time of reckoning for taking responsibility and being accountable for past actions. Capricorn and its planetary ruler Saturn represent regulations, and as the nation’s primary banking regulator, the Fed failed in every respect, except running the economy on full throttle until it collapsed. This would be the equivalent of running the Indy 500 without any pit stops. How many drivers would make it to the finish line?
Lehman Brothers didn’t and became the biggest bankruptcy in U.S. history when Pluto’s energies were pronounced September 2-16, 2008. Pluto went direct September 8, the day the government took 79.9% control of Fannie Mae and Freddie Mac. And Bernanke still continues to reiterate his “anger” over rescuing AIG from a near death experience on September 16.
So last Wednesday with Pluto stationary retrograde and Saturn retrograde shifting into Virgo until July 21, both Greenspan and Bernanke continued to reiterate their legacy of “financial innovation,” refusing to accept any responsibility for their role in the financial crisis.
Testifying before the Financial Crisis Inquiry Commission, Greenspan claimed that if the Fed had tried to rein in the mortgage industry, “Congress would have clamped down on us.” So what about the Fed’s “independence” that Bernanke and other Fed heads keep citing as a reason not to take any of the central bank’s powers away? ;-) And it is truly Greenspan who is suffering from “amnesia” since he forgets he was known as the “maestro” and everyone hung onto his every word! The Commission should have had all those tapes of Greenspan’s past testimony and speeches queued up where he encourages consumers to take out an adjustable rate mortgage.
Greenspan did get a taste of karmic payback when Brooksley Born(3), the former head of the Commodity Futures Trading Commission under President Clinton who sought to regulate derivatives but was blocked by Greenspan, Robert Rubin, and Larry Summers, got to interrogate Greenspan. Commissioner Born said the Fed “utterly failed to prevent the financial crisis.”
As Greenspan was getting grilled, Bernanke gave a speech filled with excuses for the Fed’s failure to act to curtail the excessive risks in the financial system. He credited the Fed’s “innovative programs” and the success of the bank stress tests contributed to the stock market’s recovery. Greenspan and Bernanke have touted the Fed’s “commitment to consumer protection,” yet the Fed’s rules were so loose that the Administration and Congress had to go a step further to strengthen consumer protections on credit cards and student loans. And the Fed shows its true colors in private by lobbying against the Administration’s proposal to create an independent Consumer Financial Protection Agency that would take away the Fed’s power to regulate consumer finance.
While Bernanke was speaking in Dallas, Thomas Hoenig, the president of the Kansas City FRB, spoke in Santa Fe on “What About Zero?” Demonstrating that he understands the energies of Pluto in Capricorn and Saturn in Virgo, Hoenig said:
“I am convinced that the time is right to put the market on notice that it must again manage its risk, be accountable for its actions, and cease its reliance on assurances that the Federal Reserve, not they, will manage the risks they must deal with in a market economy.”
With his Sun in Virgo conjoining Mercury in Virgo, Hoenig’s speech criticized the “long-run risks created when money and credit are too easy for too long, when interest are near zero, and when financial imbalances risk macroeconomic and financial instability.” As a voting member of the FOMC, Hoenig has dissented at the last two meetings over keeping the “extended period” phrase in the statement. Hoenig explained in the March 16 statement and elaborated in his speech that “the market appears to interpret the extended period as at least six months. Such actions, moreover, have the effect of encouraging investors to place bets that rely on the continuance of exceptionally easy monetary policy. I have no doubt that many on Wall Street are looking at this as a rare opportunity.”
Hoenig is concerned about asset price inflation, citing the example of farmland being bid up in the Midwest just like in the S&L crisis of the 1980s when he was a senior bank supervisor for the Fed. Hoenig said:
“I am confident that holding rates down at artificially low levels over extended periods encourages bubbles, because it encourages debt over equity and consumption over savings. While we may not know where the bubble will emerge, these conditions left unchanged will invite a credit boom and inevitably, a bust.”
With Mars in speculative Leo conjoining his natal Saturn and the Sun in Mars-ruled Aries opposing his natal Mars in Libra last Wednesday, Hoenig assertively challenged Bernanke and his dovish cohorts myopic view that high unemployment and a low reading of the Fed’s preferred measure of inflation, core (ex-food and energy costs) PCE (4) indicate that zero interest rates and excess liquidity in the system do not pose an inflation risk. Although employment and economic conditions are slowly and steadily improving, virtually all sectors of the speculative markets have risen to levels beyond or in anticipation of a future much brighter than today.
A planet at the beginning of a cardinal sign (5) affects the Fed’s chart by raising the potential for changes to monetary policy and how the Fed conducts its business. From 2008-2011, the Fed’s Sun (its core purpose and identity) is under the influence of the longer term cycles of Jupiter, Saturn, Uranus, and Pluto.
During Pluto’s transit of the Fed’s Sun and Pluto, the central bank took on an unprecedented amount of public and private debt onto its balance sheet and pushed short term interest rates down to zero to shore up the banks and stimulate the economy. As Saturn entered Venus-ruled Libra in late October and began squaring Pluto, the Fed stopped buying Treasuries (“quantitative easing”). The Fed also announced it would stop buying mortgage backed securities by March 31, and would let its special lending programs established during the height of the crisis expire. On February 19, the Fed raised the discount rate it charges banks for emergency loans from 0.50 to 0.75%.
The Fed’s Sun opposite Pluto reflects the frequent boom and bust perpetuated by the Greenspan/Bernanke doctrine of creating a genuine wealth effect for the few (the plutocrats) at the expense of the long term economic stability of the nation. Now the Fed must devise a broad “exit strategy” to slowly drain the excess liquidity from the system and reduce the Fed’s enormous balance sheet without jeopardizing the improving but still fragile economy.
Hoenig is concerned that the Fed will fail to act quickly enough, creating “greater inflation, significant credit and market imbalances, and an eventual financial crisis.” If the market seems bubbly now, Jupiter and Uranus conjoining in Aries early June can overheat market and economic conditions far faster than the Fed believes. The Fed flooded the economy with excess liquidity but cannot control where it goes. As asset prices rapidly rise, people feel better and the real economy eventually catches up with the asset bubble.
The April 28 FOMC meeting occurs at the Pluto-ruled Scorpio Full Moon indicating that a disagreement over borrowing rates could reach a culmination. In his Wednesday speech, Hoenig took his dissent up a notch by stating his desire to “initiate sometime soon the process of raising the federal funds rate target toward 1 percent” which “would still represent highly accommodative policy.” Saturn opposing Uranus in Pisces reflects the push-pull between Committee hawks like Hoenig who would like to slowly rein in the Fed’s boundaries and begin to tighten monetary policy (Saturn) vs. Bernanke and his dovish cohorts who want to keep things unrestrained and fluid (Uranus) to support continued growth and expansion (Jupiter approaching conjunction to Uranus).
The Sun will conjunct Mercury in Taurus (money/banks) that day, reflecting a major announcement (Mercury) regarding monetary policy coming from the nation’s central (Sun) bank. Mercury is retrograde, increasing the potential for removing the “extended period” phrase from the statement. Mercury is a dualistic energy and with the Sun and Mercury opposing the Moon, St. Louis FRB president James Bullard could become the second dissenter as he was quoted the week after the FOMC meeting that the “extended period” phrase “put the Fed in a box.” Two dissenters would likely cause a market reaction as it would show Bernanke is losing his influence a unified FOMC. Venus in Mercury-ruled Gemini challenging Pluto then could also bring another increase in the discount rate.
Back in November I wrote about the need for the Fed to tighten at the June 23 FOMC meeting, and briefly summarized in a December post the planetary influences in play then. The Sun and Mercury will form challenging alignments to Jupiter, Saturn, Uranus, and Pluto June 19-27 which will impact the Fed’s natal Sun and Pluto.
The Fed’s Sun opposite Pluto reflects how much of the central bank’s operations are conducted behind closed doors. Jupiter and Uranus conjoining in Aries and opposing Saturn in Libra and squaring Pluto in Capricorn during the summer will force the Fed to act sooner than it intended to if it wants to avert a crisis that this time can unambiguously be attributed to the Fed’s creation. Jupiter is expansion and excess, Uranus represents sharp and extreme price movements, Saturn can be overly cautious and fearful of instituting change; it is also the pressure to tighten. Pluto represents the extremes of massive wealth and massive financial collapse. All together these energies can quickly and unexpectedly flip the market in the opposite direction if the Fed is perceived to not have control over the situation.
Uranus can also describe short term rates rising in unconventional ways. Even if the Fed does not officially raise rates by midyear, if the yield on the 3 month Treasury bill rises from its current 0.15% to 0.50%, then it shows the Fed is actually allowing the market to tighten.
Related Post: “Demoting Pluto Did Not Prevent the Financial Crisis”
(1) Pluto retrograde: April 6, 2010 10:33 PM EDT Washington, DC
(2) Click here to go to the Federal Reserve section of the blog.
(3) I highly recommend watching the PBS Frontline special “The Warning.”
(4) Personal Consumption Expenditures is part of the monthly personal income report. PCE is similar to the CPI, as it measures the cost of a range of goods and services but PCE assumes and accounts for changes in consumer consumption as prices change.
(5) The cardinal signs (Aries, Cancer, Libra, Capricorn) initiate action that has a wide-reaching effect.
Thomas M. Hoenig: September 6, 1946 time unknown Fort Madison, Iowa