Should We Thank Ben Bernanke For Buying Us More Time To Prepare for the Future Dollar Collapse? Thoughts on QE3…
4:30 pm late edit… a shocker… I am so shocked… Egan-Jones downgrades U.S. debt, says Fed’s plans to stimulate economy will likely do more harm than good: http://apne.ws/SlMiQG.
Egan is the most honest of the big four ratings agencies. Moody’s at AAA and S&P at AA+ are clearly Kool aid delusional. The most credible rating’s firm in my book is Weiss Ratings, which ranks the U.S. at C-.
There is consolidation in the air for gold to digest Thursday’s gains after it took off following word of the Fed actions better known as QE3. I would argue that with QE1 in 2009, QE2 in 2010 and ongoing Operation Twist introduced in 2011, we are at QE 3.5 and well on the way to QE4 (if the financial system survives to see QE4). Gold has been flirting with the $1,775 level and no doubt on its way to the $1,800 handle. The bottom line for gold (and silver) is that with a total of $85 bln in planned Fed purchases each month in the bond market — the new $40 bln in monthly purchases of mortgage backed securities and the on-going Operation Twist purchases of $45 bln a month to say nothing of trillions in expected budget deficits predicted for years to come – the outlook for gold is bullish medium and long term. On a day to day basis gold will be buffeted by the usual volatility of the financial markets, but even in the very short term trading range, there should be decent support for gold on down days. This week’s trading range for gold will be a line in the sand at about $1735 support, or at just before this week’s Fed actions. That line marks the initiation of very wreckless and unprecendented Fed approach to monetary policy. There is no going back for the Fed – there can be no unscrambling of the monetary eggs. The Fed has embarked on a course that will expand its official balance sheet total by close to another trillion dollars within a little over a year as it seeks the maintain low interest rates for at least the next three years. The Fed says it will stay on its stated course until it gets the results of an overall stronger economy with much lip service given yesterday to boosting the jobs market and real estate. Since the previous iterations of QE have rescued real estate and the labor market to the point of only nascent recovery from cycle lows, we can conclude that nothing shall change as a result of new QE. The previous failed track record of QE1, 2 & Twist and now Open Ended QE3 shall continue to ensure the Fed shall be frustrated in getting its policies to have its desired outcome to spur the health of overall economy. Aside from low interest rates and help for its member banks and associated financial system members, the Fed has actually set us on a course for disaster (which I shall speak more of below).
The Fed is much a like a dead decaying man who continues to walk. It needs a nice bowl of soup with a lot of pepper in it, so that it can sneeze its nose into the soup and realize it is time for the cemetery.
For the stock market, QE3 is likely to be supportive as the Fed is quite hell bent on keeping the bond market yield curve flat and near zero percent, which will compel many, including widows and orphans, to take a gamble on the stock market in search of income and greater return. The trade in stocks has worked well since the 2009 stock market lows, but with the recent higher highs comes greater risk. Be sure to have an escape plan.
I see ulterior motives at work. Call me a cynic, but Bernanke and friends pretend to be more open and sincere, but it’s never about what the Fed says so much as what it DOES. Benny and the inkjets have got to be well aware that a fiscal cliff looms. Actually, let me rephrase. Bernanke and friends ARE aware that a fiscal cliff looms due to a polarized D.C. political process – a subject that he has addressed in his Congressional testimony. This interestingly timed QE3 could perhaps boost and support markets ahead of what could be a very negative time for the markets if the fiscal cliff becomes a repeat episode of last year’s near default due to the debt ceiling political grandstanding and haggling. As noted above, we already see that Egan has cut the credit rating of the U.S. Moody’s warns it may do the same but not due to excess but as a demand that the excess continue with no interruption. It’s either the anticipation of the fiscal cliff, or the Fed has gone completely off the reservation and is really in full panic mode. Bernanke, yesterday, tried to sell this latest “open ended” QE (which makes this radical QE) as being pre-emptive in supporting an economy that in the Fed’s language is anything but moribund (in its estimation). We are at the final frontier of the monetary universe. Says the Fed:
“Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.”
Quite interesting that the Fed over, over delivers all out open ended QE with a “moderately” expanding economy.I have to go from point A to point B and need 10 gallons of gas. Instead I install an extra tank that can carry 50 gallons becuase I somehow know gasoline is going to be cut off for a while. However, I feign ignorance and pretend the state of things are moderately ok when I need I will need emergency supplies. This is what the Fed is doing, folks.
More Weird Thoughts About QE and Bernanke (half tongue in cheek)
I don’t believe for a minute that Ben Bernanke is feeling warm thoughts about just how good the economy is (as some commentators claim) while he reflects during his morning shower. This is why I see ulterior motives at work. The reality is the U.S. economy is actually not working so well despite about $20 trillion in fiscal and monetary stimulus that’s been heaved in the direction of the financial system. The Fed has signaled this by going full steam ahead with a unprecedented plan for unlimited printing. It is going to allow the monetary inflation to continue with no clear cut plan to put such an ill advised policy to an end! They have no other plan. This is monetary poker. Bernanke has gone all in – so to speak!! This is a shrouded message to Congress that the Fed is done and has no new tricks up its sleeve, even if it vaguely talks about using “other” monetary tools. The Fed’s cards have laid upon the table. And if you think Congress can tackle a problem that is now far beyond cutting spending and raising taxes, and avtually initiate large scale structural reform (discussed in this space a few days ago)- I am more than pleased to show you a Victorian era bridge in Brooklyn that I have up for sale.
Here’s the weird thought: At best we can consider Ben Bernanke to be a pseudo friend in the sense that he has given (for those who are paying attention) additional time to prepare for future monetary disaster. The present status quo of continuous “printing” to infinity is actually not something that can go on for an eternity. (Digression: ‘QE to infinity’ is actually a flawed phrase since even the universe is not infinite – there shall eventually be a stopping point to man made printing. Bernanke is pressing the peddle to the meddle for a faster arrival time to financial doom (which is why you should by that gold or silver precious metal to win a hedging medal!). We will, or future generations will look back on QE and realize that it could only ever have been finite. In a bizarre and perverse sort of way, we should thank Bernanke for giving us time to prepare for a monetary train wreck - the roots of which have been decades in the making. There is no way to go cold turkey on fiat currency until the system implodes on itself (most fiat currencies have had a life of 45ish years). Bernanke could very well take the brunt of blame in future history books for causing this situation, but in reality he has merely shown up at the wrong time in history and is doing what it takes to support the ongoing corrupted monetary system that certainly Congress won’t touch even with a 39-1/2 foot pole. I realize that Bernanke is a willing participant in the fiat charade which has taken on many anti humanity characteristics, so my sympathies to him are quite limited, but it’s always nice to be mannerly and say, Thanks! Plus, for all of us who have lived within this system and supported the political atmosphere that has allowed profligate spending to go unfettered by merely voting and approving the people in power, ‘it was all fun and games until the money ran out’. Unless you have lived in a cave, all have enjoyed the
poisonousfruits of fiat money simply by having even spent a single dollar (yes, I know it was not as if we had a choice in the matter). Bernanke and his ilk are a by product of a bigger problem: a crumbling social fabric that has morphed the U.S. system (never perfect) into a very imperfect fewer-and-fewer-limits (Pagan) embracing society where even the very objective U.S. Constitution is being torn asunder by its own government and many citizens who see it as a relic. If the foundations of what some would nostalgically call ‘what once made America great’ are crumbling, it’s no wonder that monetary policy would devolve into a ‘close your eyes and let’s hope for the best’ experience.
Again – I say ‘thanks, Ben” kind of tongue in cheek. We get more time to prepare, but make no mistake – Open Ended QE is THE wake up call that the system is going to eventually go down the drain – perhaps sooner than expected. I held out until late August that the Fed would be more prudents and wait to do this until December and after the elections, but backed away from that position after the Wyoming Fed gathering. There is no prudence, or principled behaviour at the Fed.
There never was prudence or principle at the Fed because of its designed from the start, but the doses of destroying the American dollar were smaller once upon a time and have at least in the last 10 years taken quantum leaps.
As long time readers know, I am someone who feels that there is “nothing new under the sun” – words written thousands of years ago. We are now at the point of Unlimited Fed monetary “printing”. This has been tried before over thousands of years of human history. When has that ever worked before? Never. I challenge anyone to look back to the annals of history and find me one society that has ever survived within the atmosphere of profligate fiscal and monetary policy. Thank goodness gold (and silver) can’t be “printed”.
p.s. for the patient and daring, wouldn;t it be funny if Bank of America stock rallied the next several months as the Fed would buy its worthless MBS in the usual way – at face value. LOL. Only problem there is the issue of lacking world peace and what the Middle East shall become during the same six months. Good luck.
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Author Jim Kingsland
Market commentator with focus on Gold and Silver after long broadcast career at FNN, Bloomberg, and Fox. #RandomHouse published author on PMs. Jim has also been involved in projects for CAC and Coinplex.
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