Out of fear over some growth amputation now, it seems that the Fed prefers living lavishly some more on Debt Steroids, eventually leading to Economic Death later. Is the uncut continuation of the US Fed’s QE3, a cause to rejoice? Fed chief Bernanke reinforced his standing as the most activist Federal Reserve chairman in history by doing the unexpected: Nothing. Of course, there will be even more money printing and money flooding into the system, which will cause financial assets, to go higher in price in the future. Why?
It’s because the Federal Reserve surprised the world by refraining from reducing the amount of bond purchases from the current $85 billion per month to something less. The guesses and expectations were for between $10 billion and $15 billion less per month, to bring the number down to “only” $70 to $75 billion per month. But the actual reduction was $0, a “Taper Zero” leaving the purchases at $85 billion per month. Of course, while everything from stocks, bonds, gold, silver, oil, copper and pretty much everything else gained sharply, the dollar got hit right away – and for a pretty good amount, given that it’s the world’s major reserve currency – losing more than 0.75% in the blink of an eye. The U.S. financial markets just exploded on the idea that the Fed was not going to reduce its asset “purchases” (Mentioned purchases in quotes because purchases are essentially made with money that was earned). Doesn’t it occur to anyone that by simply adding up “Debt” by way of so-called monthly asset purchases, the US Economy is hurtling itself to an unavoidable “Economic Death”?
The shocker “No Taper” sent stocks to record highs and triggered the biggest rally in Treasuries since 2011 as investors repositioned for a more accommodative central bank. Bernanke said the Fed must determine its policies based on “what’s needed for the economy,” even if it surprises markets. Apparently, the decision to abstain from tapering bond purchases underscored Bernanke’s willingness to do anything to lower unemployment. But is that all or is there something more than that meets the eye? The overriding message the Fed wants to send is that it remains completely committed to providing as much support as necessary – whatever that may cost – even to the economy itself eventually. Bernanke, whose term ends Jan. 31, has kept interest rates near zero for almost five years and swelled the Fed’s balance sheet to a record of $3.66 trillion through buying Treasuries and mortgage-backed securities. In his press conference yesterday and in his policies since the financial crisis, Bernanke has refused to give up on the power of monetary policy or the ability of the U.S. economy to eventually heal from the worst recession since the Great Depression. Bernanke said he wanted to “wait a bit longer and to try to get confirming evidence” that the economy is showing signs of lasting improvement. “We want to make sure that the economy has adequate support,” he said. This “Waiting a bit longer,” eventually may turn into waiting for the economy to be crushed to death by the massive weight of national debt.
This debt crisis is going to end up destroying the global financial system and the unprecedented debt binge seen right now is going to continue until someday we hit a brick wall of financial disaster. We can yell and scream, but what is happening isn’t going to stop. The U.S. has the biggest mountain of Debt. 30 years ago, the national debt was a little bit above a trillion dollars. Today, it is rapidly approaching 17 trillion dollars. At this point, the U.S. already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain. And since Barack Obama entered the White House, the debt to GDP level has soared to unprecedented heights… The U.S. debt is wildly out of control, and the only way they can keep the entire system from collapsing is to go into even more debt. But most Americans do not consider it to be a problem because disaster has not struck yet. Unfortunately, they simply don’t understand how quickly an exponential problem can overwhelm you. By the time that the politicians and the talking heads on the mainstream media admit that the U.S. has a debt emergency on hands, it will probably be far, far too late.
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The Fed seemed eager to taper, so gold and silver prices got killed – Was this also manipulation? Was the Fed really eager to taper or was it simply a move aligned to favor the Big Banks that were involved in market manipulation? It now all falls into place. The Fed also conveniently got economic data to show the economy was sharply improving, which in turn convinced the masses that a “taper” is bound to come by Sep as assured. Gold and silver prices were madly massacred in the bargain, which directly helped the Big Banks who were holding massive naked shorts. Part one over.
Part two – Now note that these very Big Banks are holders of massive long positions in gold and silver futures. The traders and investors the world over, by now have turned pessimistic over gold and silver futures after being convinced of the looming stimulus withdrawal or tapering. Now comes the second manipulative and shocking move by the Fed – highly unexpected Zero Taper. So, gold and silver prices rise sharply, helping the Big Banks gain, while swindling the major masses for the second time in the same year. Wisely, most of the gold and silver investors this time around, have preferred to take the physical route over the paper one. But come to think of it – I wonder, who is the Fed really working for? It’s clear who Bernanke really works for: Corporations, the Banksters and Wall Street.
As the Burning Platform aptly elaborates:
America’s companies, from Apple Inc. (AAPL) to Verizon Communications Inc., are saving about $700 billion in interest payments with the Federal Reserve’s unprecedented stimulus.
Corporate bond yields over the past four years have fallen to an average of 4.6 percent from 6.14 percent in the five years before Lehman Brothers Holdings Inc.’s demise, a savings equal to $15.4 million annually per every $1 billion borrowed. Businesses took advantage of the Fed’s largesse to lock in record low rates, extend maturities and raise cash by selling $5.16 trillion of bonds, data compiled by Bloomberg show.
“The stimulus was a huge saving grace in the economy overall,” said J. Michael Schlotman, the chief financial officer at Cincinnati-based Kroger Co. (KR), the grocery store operator that estimates it’s paying about $80 million less in interest than it would have pre-crisis. “It probably kept some businesses from failing because they were able to refinance their debt at lower interest payments.”
The combination of a near-zero rate policy and more than $3 trillion of bond purchases by the Fed since December 2008 means that the collective interest savings enjoyed by Apple, Verizon (VZ) and more than 2,000 other corporate borrowers exceeds Switzerland’s $632 billion economy.
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Chris Martenson has long argued, the Fed is boxed in and almost certainly will continue to print as much and for as long as necessary. Along the way, everybody knows that the financial markets are becoming more dependent on continued Fed stimulus and that tapering, let alone actual unwinding, becomes an ever harder and more remote possibility.
Further, we all have to try to make sense of the growing gap between the Fed’s actions and the reported economic statistics. After all, $85 billion a month is an emergency amount. And so we have to ask, where’s the emergency? It’s not in housing, or auto sales, or the headline GDP number. Nor is it in bank earnings or growth in wealth for the already wealthy.
The simple truth, as I see it, is that the Fed now knows that as soon as it takes the punchbowl away, all of the apparent wealth evaporates and the market crumbles. Here we might note that if several years of truly historic money printing has not yet provided enough self-sustaining recovery, why exactly is it that the Fed thinks more of the same will do the trick?
Something just does not add up in this story. What is it that they are not telling us?
Well, one thing that really does not fit in this story is that oil over $100 per barrel. As far as I am concerned, there will be no such thing as resumption in the type of growth the Fed wishes to see before it willingly begins tapering (end eventually unwinding), because of the price of oil and debt levels that are still far too high. Which means the Fed will keep on printing money until something happens. More bluntly, I think the Fed will keep printing until some form of market accident happens that forces it to behave differently. When that happens, the Fed will be following, not leading. And many will be cruelly punished for believing that the Fed had some magical ability to re-write economic laws.
By failing to taper, the Fed has all but admitted that it is quite worried about something that it is not publicly disclosing. But it’s not that hard to read between the lines. The Fed, along with everybody else, knows that the markets are elevated mainly because of the QE money-printing, and it is desperately afraid to find out just how much elevation it is supporting. The best guess is a lot.
For now, the whole world seems content to just go along with the story and buy up everything that isn’t nailed down, which is just another way of saying don’t fight the Fed. To my way of thinking, this is just inflation, pure and simple, and the Fed has engineered another huge bubble, this one bigger than all the others put together. It is now our job to figure out when and why this one, too, shall burst. Again, I consider all of this to be perfectly reckless behavior. We have to be open to the possibility that rather than being a paragon of competence, the Fed is actually staffed with ordinary humans who have no better idea of where this is all headed than anyone else.
With history as our guide, we’re pretty confident saying that this ends badly, and given that this is the largest bubble by far, we might even guess that it ends really badly. But we can never know the when of such matters, and so we continue to prioritize building resilience at the personal, financial, and community levels.
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