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The Fed Must End QE2 on April 27th
By Dian L. Chu, EconMatters
The Federal Reserve has lost all credibility on Wall Street, and most of the American public with the absolute refusal to recognize the dire effects on asset prices that QE2 has created. But the refusal is part of the problem. It reinforces the wide spread belief of investors that the Fed is out of touch with reality, and that they sit in their Ivory Tower implementing an exceedingly loose monetary policy, with the stated goal of inflating asset prices.
The Fed has refused to even acknowledge the possibility (rather than the indisputable facts) that not only have they inflated selected asset prices like S&P 500, the Dow indexes, but they also have inflated asset prices like food, energy, and clothing which would actually hurt the economy and consumers (See Chart).
Needed – Housing and Wage Inflation
Remember, overall inflation is actually being artificially under-reported by the numbers because housing and wages are not inflating. These are the two actual groups of assets that Americans in reality need the Fed to inflate. But Fed’s policies have been unable to help and seem to essentially be hurting the housing sector, as higher everyday living costs with stagnant wages tend to reduce disposable income and resources that could be otherwise allocated to saving towards a down payment to purchase a house, improving the real estate sector of the economy.
Inflation Exported Would Come Back To Haunt
Furthermore, since most of these asset prices are priced in dollar, the fed has exported dire and extreme inflationary pressures on an already precariously balanced inflationary picture in the emerging market economies from China to India.
It is the proverbial throwing of jet fuel on a barbeque for most of the economies. Yes, Bernanke is right that these countries had inflationary problems before based upon their undervaluing currencies. Nevertheless, this is how their economies have been set up in the global trade role that has been 30 years in the making.
These countries just couldn`t revalue their currencies near enough to still keep their role as exporting, cheap labor manufacturers, without sending the entire region into a 10-year depression which would bring the entire world into a depression not seen since the Great Depression.
Unmanageable Inflation Elsewhere
Given the fact that these manufacturing exporting countries cannot meaningfully revalue their currencies, they are basically stuck with an endemic higher level of inflation compared with the developed economies, but it is still manageable. Now, with the US`s persistently loose monetary policies exacerbated by QE2, raising input costs for commodities used in abundance by these manufacturing, cheap labor economies like Oil, Copper, Cotton, and Iron Ore (See Chart), these policies are exporting additional inflationary pressures to these developing economies.
This results in making what would be a manageable level of inflation in China of around 3.5 to 4% an unmanageable level of inflation at 5.5 to 6%, and maybe even higher as the full effects of the inflation of commodity asset prices have not yet fully been incorporated and manifested in the Chinese manufacturing economy.
Long Live the Inflation Trade
The other area where Ben Bernanke`s stubbornness of acknowledging the effects of QE2 on food and energy prices, i.e., the rise in prices is due strictly to demand reasons, Middle East tensions, and product shortages and in no part to a loose monetary policy which encourages traders to make the following trade:
- Loose monetary policy is dollar negative (printing money, currency devaluation, etc).
- Commodities like Oil, Gold, Silver, Wheat, Corn, Cotton, Copper are Dollar negative Hedges
- Therefore, put on the following trade: Short the dollar, and go long commodities.
This is the famous inflation trade is has been going on and off for the past 10 years by fund managers around the world. This trade has been in the investing 101 handbook for 50 plus years. And the fact that Ben Bernanke never admits to knowing about these trade dynamics in the marketplace, and how his policy initiate of QE2 actually encourages, facilitates and even mandates that fund managers around the world put on this very trade is beyond a rational explanation.
Inflationary Effects Are Transitory?
In addition, it is even more incredulous of Bernanke and his failure to acknowledge any role whatsoever for the feds function in these higher commodity prices when their stated goal is to in fact inflate asset prices. Whenever he is interviewed about this very question he always uses the standard response that inflationary pressures are not due to the recent Fed policy of QE2.
I guess these are assets that the Federal Reserve has expressly forbidden traders to inflate. However, Bernanke also adds that these inflationary effects are transitory in nature--he has been saying “transitory” for over 6 months now. How long does it take for ‘transitory” to become “stuck in the economy, and cannot get rid of without a massive rate hike sledgehammer”?
Fed Out of Touch with Reality
It is starting to sound like a broken record, and it is completely divorced from the facts in the marketplace, or the facts on the ground for those not in the Ivory Tower. It is this main street denial that has reinforced the notion that Bernanke and his dovish colleagues with their incessant soft selling of inflation in their comments regarding inflation questions every week that they are out of touch with reality.
This “fed out of touch with reality” notion only goes to reinforce the very “Inflation /Currency Devaluation Trade” causing traders to pile even more capital into shorting the US Dollar and going long Commodities because it is only going to get worse down the line. This is what is referred to as inflation expectations.
Dovish Fed Undermines The Dollar
The fed policies regarding QE2 are not near as damaging for the US Dollar as traders perceptions of the Fed policy of QE2, and judging by the rise in Silver alone will tell you, traders perceptions of QE2 is extremely negative. And that old adage perception is reality takes hold and traders do far more damage to the US Dollar than any actual currency devaluation due to QE2 by going heavily short the currency. Traders and their perceptions right now are what is really hurting the US Dollar and Bernanke has failed to realize this fact.
Another interesting question for Bernanke and his Dovish colleagues, and it appears that even the more hawkish members of the Fed are still to dovish in their market comments regarding inflation. Probably because they all are in the upper income bracket on a percentage basis compared with the average US consumer, and are largely immune to the ridiculous six month rise in food and energy prices felt by the average American citizen.
The Fed can change all that on the 27th of April with either a cutting short of QE2, or an equally hawkish wording of the fed statement with a nod towards tightening sooner than previously indicated in past policy statement wording.
Everyone Worries Except the Fed
The Fed might ask themselves the following question:
- How come at every Speech where there is a question and answer session that you are asked about inflation?
- Or how come every reporter when interviewing a fed member asks them about their role in causing inflation around the world and how this is contributing to political and social instability in emerging economies?
- Is this just by coincidence, all these reporters and questions revolving around inflation effects? The answer is that these questions are being asked for a reason, and that alone is a problem for the fed.
Another question for Bernanke is how come every other country is worried about inflation, including developed economy neighbor Europe, while the US doesn`t have an inflation problem? It seems the US is the only country in the entire world where inflation isn`t a problem? Does this seem logical? And if it is in fact the case, how long do you think it will stay this way, where the entire globe is experiencing inflation pressures but the US has a “transitory” inflation problem?
When Transitory Turns Self-Fulfilling
The problem for the Fed is that this goes beyond current inflationary effects in the economy, but future expectations of inflation in the economy. And none of these are transitory in nature once they get embedded in the psyche of investors and consumers. The only way they were doused in 2008 when they were at these exact levels was a near historic crash in the financial and housing markets.
Absent of some similarly extreme deflationary event, inflation and expectations of inflation are only going to feed on themselves and become even more firmly entrenched in the economy, negatively reinforcing investors and consumer’s asset allocation and spending habits.
This all becomes self fulfilling in nature, and the real nasty part about inflation is if you don`t head it off early, once it gets even a little momentum, it becomes much more difficult to control and manage. This is where the fed is right now; they are at the cusp of losing control of their handle on inflation with their incredibly dovish stance towards inflation.
End the Denial or Lose on Inflation
Bernanke and the current Federal Reserve Board have a credibility problem both with Wall Street traders and the American population. The sooner Ben Bernanke acknowledges his role in causing inflation, the better off we will be in fighting the battle of inflation. The longer the denial routine of “transitory’ responses continues, the increased chance that Bernanke loses what shred of remaining credibility he has on the inflation issue.
Then, the inflation battle is essentially lost without equally devastating policy responses that are almost similarly as bad as the inflation effects, i.e., you have to send the economy into a recession with an abundance of tightening measures that completely destroys growth to get a handle on prices.
Needed - Hawkish & Cut Short of QE2
Again, the Fed and Bernanke can change all this on the 27th of April, failure to do so basically dooms Bernanke`s legacy to be remembered by the initial moniker put on him when he initially was chosen as Alan Greenspan`s successor, when he was commonly referred to as “Helicopter Ben”!
During his first six months on the job as Fed chairman, he did everything possible to dispel such a label, but he has more than made up for that period during the last six months regarding his outright refusal to acknowledge the exceedingly negative side effects revolving around out of control food and energy prices related to his QE2 Initiative.
The average American citizen cannot withstand another two months of “Asset Inflating” on behalf of the Fed, enough is enough, time to cut the QE2 policy initiative short.
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I, for one, hope they keep printing...at least until oil hits $220 and gold hits $5,000....until then I see no inflation....
Yup, and even $220 for a barrel of oil and $5000 gold, will be fairly cheap compared to how much they've trashed the dollar. I am astonished that the smart posters on Zerohedge are hating the prospect of future inflation so much -- after all, they have the most to win if the bankers are liquidated (if not their businesses, than personally and literally), and control in the economy is restored to producers.
The Federal Reserve has lost all credibility on Wall Street, and most of the American public...
The "America public" has never heard of the Federal Reserve...
Isn't the claim that "inflation is transitory" a simultaneous tacit admission that it also exists? After all, if it doesn't exist, then it can't be "transitory"! You can't have a phenomena that is transitory unless it exists, and it can't be non-existent if it is transitory, can it? His logic is worse than faulty. It exposes a lie, one way of the other!
It's a two-faced lie! Either it exists, in which case it MIGHT be transitory, or it doesn't exist, in which case he would be justified in denying it. But he can't simultaneously DENY its existence wwhile also saying that it is "transitory". That is inherently contradictory and in either case, he's lying!
The Chairsatan must be renamed. His first name is now and forever more deemed "Bubbles". "Bubbles" Bernanke!
oh shit look at the metals rising in asia
Jeez, rising? It is jumping! This is too fast. If it doesn't level off for a while
there will be a BIG correction.
Don't worry, wait till London closes tomorrow, or Tues, the Bmaster & Co, will drag gold down and beat it.
Silver maybe not.
Every blog,article I have read is it's a massive bubble, and it's going to blow in the next two days.
They oddly never seem to mention fundos.Because the asses do not know WHY it's rising with such gusto.
+1 Honestann.
My only disagreement would be that we did know how to originate mortgages in this country that led to affordable home ownership not that long ago. You had to put down 20% for a fully amortizing fixed rate mortgage with reasonable DTIs (i.e., your income could easily service the mortgage). Further, the institution that originated the loan actually held the paper until maturity or prepayment. In other words, they were damned concerned about underwriting standards and gasp-- might even value a long term relationship with the debtor.
How quaint.
Larger downpayment requirements would improve affordability, as less spread would be paid to bankers over time. Lowering downpayment requirements or "subsidizing" the market actually made housing less accessible and affordable over the long run.
This is not the only thing that is supposed to happen at the end of April. Lets just hope it is all the hoopla it always is.
FOR ENTERTAINMENT PURPOSES ONLY:
http://www.forbiddenknowledgetv.com/videos/end-of-the-world/fema-on-nati...
http://www.thetrueawakening.com/2011/01/fema-prepares-for-new-madrid.html
https://www.ideals.illinois.edu/handle/2142/14810
Not that all this is supported or endorsed from The Heart, but past knowledge has taught us to be cautious. The FEMA excercises are always to be watched closely. Remember, the fact is they were running drills and excercises on 9/11 that went live to justify the military industrial complex's protracted wars that are gutting the economy now. High Oil prices and endless war=the Death of the US.
(Not supportive of this link below, but is does list the drills and excercises that were happening during 9/11. For entertainment purposes only)
http://www.prisonplanet.com/articles/september2004/080904wargamescover.htm
http://911proof.com/9.html
Will the fed banksters create another 9/11 Type Event to cover the dollars crash and the criminality that has been going on for so long? Time will tell.
Much in the article is correct, but unfortunately repeats the MASSIVE FALLACY that rising real estate prices are desirable.
The fact is, low prices are good and the natural state of a technologically advancing civilization.
The fact is, deflation is good and the natural state of a technologically advancing civilization.
It is true that falling home prices will mean a certain number of people who bought near the top of the bubble "got a bad deal because they made a stupid, emotional decision". So what? Almost everyone who buys anything because he has an emotional desire of some kind gets a bad deal and regrets the purchase.
But the fact is, this mistake on a home purchase is massively less damaging to most people than other mistakes. Why? Because most of them did not pay cash, and their loan is secured by the home. So they can walk away from their loan and cut their losses to their down payment, which typically was extremely low during the bubble.
The fact is, most people pay 8 to 12 times too much for their home due to financial and legal manipulations by the predator-class (banksters). This is easy to demonstrate, and I have done so in these forums in the past. If all the scams implemented to boost home prices were removed, most people could afford to buy their home with CASH. A $200,000 home would cost about $20,000 which can be saved in a few years at most by frugal living (in a world where prices have not be driven through the roof by the bankster implemented, highly demented "debt society"). In fact, most parents could give their kids a home as a wedding present ($10,000 from each family).
Just imagine what life would be like if you had ZERO mortgage or rent to pay. Just imagine how vigorous the economy at large would be if people had an extra $1000 to $2500 per month to spend on... whatever they want (education, vacations, starting new businesses, healthier food and lifestyle, etc).
Such is life without the fiat-debt driven, bankster and politician enriching scams that dominate today. The vast majority of people cannot even imagine such a society, but it is very simple. Money == gold. No paper currency (where the banksters can issue more paper receipts for gold than they have gold). No fractional reserve practices (where banksters create money out of thin air). Just simple straightforward life.
Yes, such a life has far fewer opportunites to borrow money. But when your home costs drop to near zero, and everything else is much cheaper too, who needs to borrow? Answer: generally the only purpose to borrow is to implement or expand production lines in a viable or profitable business.
People need to stop nibbling around the edges of the problems and hit the RESET button. Small changes will not help significantly, and the predators will simply find other ways to scam the system to direct wealth into their pockets for zero productive activity on their part.
How do you build a house for $60,000 when just a kitchen costs $35,000?
There are a lot of $600,000 priced houses that should be $200,000. But there aren't any $200,000 houses that should be only $60,000. That just can't work.
Sorry, you missed the correction I had already posted (immediately below). The correct number is $60,000 not $20,000 for the reasons I mention below. Also, the kitchen would not cost $35,000 if all bogus scams were eliminated. One reason insanities like "$35,000 kitchens" exists is because most people are morons today and ONLY care whether they can make the 0% to 3% down payment and "be granted the loan". In any market where people don't care about price or value, prices go insane, as they did.
If the system was changed back to an honest, non-debt-based system, you could buy a small home for $35,000... not just the kitchen.
Correction: An appropriate priced home today would cost $60,000 not $20,000 as I stated in my original message. Why? Because a $200,000 home costs people $600,000 by the time they pay off the 30 year mortgage and bogus fees like closing costs, points, fees, BS. Thus the price people pay is $600,000 and 10% of that is $60,000. Or to say it another way, if you buy a home with cash today, you're only overpaying by a factor of roughly 3x to 4x. But most people pay 8x to 12x more than they should because they put 0% to 3% down and finance the rest.
I have a hard time believing that; it takes roughly 2-3 man-years of labour to build a house including harvesting the materials. At $40k/year for a construction worker, that's easily $80-$100k. If you push the construction workers' wage down, and the wages of all the upstream producers, sure, the costs will be lower. But then you'll have to, yourself, suffer with a lower wage.
But no reason for California houses in places with no land scarcity to cost $500k+.
You must live in California, and the contractors must employ no "illegal aliens". The fact is, brand new luxurious homes are selling for $75 per square foot today. That's $150,000 for 2000 square feet.
To figure out the appropriate costs, you need to perform the full analysis. You need to consider how things work in a non-debt based market. Do that and you'll find costs drop dramatically for various reasons. Just one example. When people need to pay cash, they don't just buy whatever overpriced components the builder wants to supply (larger margins), and people stop asking builders to customize their home in endless ways which lowers efficiency and raises costs because it complicates "production line" techniques.
There are quite a few considerations involved in figuring out what the market would look like in an honest economy. You can't just jigger one factor and pretend everything else remains the same.
honne,
Uh, about this.
"But the fact is, this mistake on a home purchase is massively less damaging to most people than other mistakes. Why? Because most of them did not pay cash, and their loan is secured by the home. So they can walk away from their loan and cut their losses to their down payment, which typically was extremely low during the bubble."
And wind up in court, declaring Bankruptcy does not get you off the hook here anymore.
It gets you sued, and back in front of a Judge.
You will pay for walking away,every last dime.Cost of loss to the Bank, v.s market price,when and if it sells,along with penalties and interest.
And that mi amigo is a bitch.
Only Corporations, and small business can declare bankruptcy now, and walk, start over again debt free.
I have a daughter that owes several thousand dollars on credit cards.
She used them while her husband was ill, and unable to work for 18mos.She tried to work out a pmt plan with the Bank that holds the card.
NO DICE.
They wrote off the debt,and turned the debt over to a CC Agency.
She is having to go to court to face a Judge, and he/she will set the payment schedule for them on the unpaid balance.
I would have paid this off long ago for them, but their lifestyle, and spending did not change while he was down.
Time for a life lesson.
And she would not try to get a better job(here she could easily, even today).
So, I told my spouse this is a great learning experience for them.(as much as I hate it)
Facing a Judge for being unwilling to help yourself(even try), has a cost.
They are going to find out the hard way.
Hopefully, this will open their eyes and cause a new way to look at money, finances, and spending for the rest of their lives.
Pain, can be a great healer..........and teacher.
I'm not sure what planet you are from, but I suggest you do some research to see how many people who walk away from their home end up in court or suffer anything but a credit rating ding.
Furthermore, you apparently don't know about "personhood". Legally, a "person" is a type of corporation. Everything you have that has your name in all capital letters is NOT you (the living, breathing man), but is a "fictitious entity" that the predators created to scam and enslave you. One of the downsides (from the predator standpoint) is that IF you are aware of this, you can make sure you are treated as a corporation in almost all cases (except physical murder and physical theft on your part).
I do NOT advocate irresponsibility. However, the entire financial system IS a massive fraud. The so-called "dollar" is unethical, criminal and unconstitutional. The FederalReserve and its actions are unethical, criminal and unconstitutional. Fractional reserve practices are unethical, criminal and unconstitutional. Yes, I know, the government does not prosecute these crimes, and today is major part of the scam. However that does NOT change the fact that every loan you have ever received from a bank is FRAUD by the bank. So on that basis too you can walk away. Also on the basis that they have not given you anything of value, because creating digital bits out of nothing (which is where the bank gets the "credits" or "dollars" they "put" in your account when you "borrow" is created out of thin air at zero expense).
I have never taken a loan or had a debt, and have purposely lived a very frugal life when compared to most westerners. So I'm not saying what I do to justify unethical behavior on my part. I am also aware that people were blithering morons for buying a home after about 2003~2005 (depending on where they were). Many times I warned people who were about to buy what had to happen [when house prices get to the point where so many people could not even afford to pay the interest payments on their mortgages]. I remember two people who worked at the company where my boyfriend was "director". They earned $20,000 to $40,000 less than my boyfriend, yet they were buying homes that cost far more than both of us together would consider within our reach - like a 1100 square foot homes on 1/12 acre for $630,000 with a gross income of around $30K ~ $33K and almost zero down payment. They were insane, we showed them the numbers, explained the insanity, and proved they would never even earn the principle of their loan in the rest of their working years (much less interest). Did that stop them? No. Humans are morons!
And the real-estate agents, brokers, assessors, banks and everyone else in the real-estate and loan business were clearly criminal predators.
You're doing the right thing. I have a deadbeat younger brother. They never change until forced to, even then, they often choose to be destitute.
You're doing the right thing. I have a deadbeat younger brother. They never change until forced to, even then, they often choose to be destitute.
Oh, they will.................until the pain it causes makes them re-start it.
And nothing can stop it from being re-started.
xcuse this if it has already been said:
The american public think the Federal Reserve is a 30 yr bottle of rye whiskey.
When asked, "who is ben bernanke?", they reply: "He's the lastest contestant to be kicked off the island? No? Then he must be on "Dancing with the Stars".
You greatly overestimate the engagement of the masses in its own manifest destiny.
The Bear should be called as a witness by the Justice Department
http://www.xtranormal.com/watch/11855451/drill-and-quit-printing-money?l...
What the FED does really doesn't matter anymore. Too many folks are on the same side of the trade whether it's gold, silver, stocks, or other commodoties. While physically having gold and silver won't affect you as dearly when the crash ensues, paper trading is what moves the markets, and anyone holding this paper, including stocks, are going to feel a lot of pain soon.
The crash is inevitable, whether QE2 ends or not, whether QE3 begins or not, the ship is sinking as everyone stands on the same side of the boat. It's tilting over on one side further and further each passing day. What goes up must come down, and it comes down a whole lot faster. Benny Bubbles knows this, and that is exactly why he refuses to acknowledge there is inflation, because he knows as soon as he does, it will be a bloodbath of selling.
I have already taken all my silver and gold paper profits on Thursday, and I will soon begin moving it into ZSL and VXX. I will hold my physical, and make the fiat in other ways. Even if I lose on the paper trade somewhat, I still have my physical assets.
The best way to stay ahead of the game, epsecially when it comes to stocks and the paper trade, is to beat the bloodsuckers into the position before they all start piling in and running it up too fast. Don't wait until the crash is in full mode before you make your move to the other side of the boat.
Err.....uuhhh....inflation causes stocks and other physical assets t rise in price. Interest rates, should they rise, accompanied usually by a rising Dollar, would fulfill your prediction of massive selling.
But no inflation WITHOUT Wage and Salary increases in the 10% per year range, as happened in the late 70s early 80s.
If you examine the machinations by fed, can you really think it is not by design? The housing collapse provides a giant renter class that will return us to feudalism, whether by fission or entropy. They are consolidating their gains as the populace sleeps. The gifts make the one group happy. The 1% that own islands or countries where they can go hide.
They don't need islands or countries. They have these under construction and the orders are pouring in:
http://www.overseaspropertymall.com/property-type/billionaire-homes/streets-of-monaco-to-sail-the-seas-as-first-billion-dollar-yacht/
Bernanke is a Global FINANCIAL TERRORIST, with blood on his hands from Tunesia to Libya to Syria, where over 50% of incomes go towards food. He has put 5 million more Americans, many over 65, into poverty in the last year due to a loss of over $1 Trillion a year in historical yields on savings (4.5%). A citizen's arrest is long overdue.
I was thinking more along the lines of nice public dragging over broken glass followed up by a good fashioned draw and quartering....
....but that's just the theatre fag in me talking....
Bernanke is a Global FINANCIAL TERRORIST.
Dian
Please tell tyler to read the email on MIT's top secret financial search engine. They have invented a financial google with their billion price project, and they are keeping it secret.
What happened to those "inflationary expectations" in 2007? I remember those same expectations. I raised the rent on my rental with that excuse. Right at the top....
Bernank is right when he says that wage inflation is needed to cause long term inflation. Supply and demand.
If China is raising interest rates to slow down inflation they will also be slowing consumption. In a world of scarce resources this seems the reasonable outcome. Rising interest rates, slower economies and conservation.
You see, high oil prices are ultimately deflationary.
gh
Bernanke was brought onboard because he was an academic specialist on the Great Depression and we were at the beginning of the New and Improved Depression when he arrived. His pontifications tried to nip it in the bud via smoke and mirrors, not to be confused with TARP, ZIRP, QE1 and QE2, et al. Chu's point that wages and housing remaining uninflatable speak volumes as to what is really going on. This game will not end well.
Oil prices 2011-2012, prediction chart made on February 6th:
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&start=0#p30486
By the way, this chart still works very well since it was born, predicting both 2 spikes and troughs in right time . I hope it will work also in future. Based on it, as it shows a temporary minimum for oil in early May, I would expect Bernanke to say something that corrects commodities a bit, something bad about either increasing rates with exit from QE2, or NO QE3, or some other way to save short term silver short owners and the USD from rapid devaluation.
One of FEDs mandates was currency stability, was it not? Or was it only price stability and employment?
@ej: the raising of the debt ceiling alone does nothing but allow the government to add more debt to the future generation's tab. What it will do, is provide the freedom for Timmay and the Bernank to keep their little exchange going.
How they hide the QE is a great follow up question for this Easter Sunday. Where will the teleprompter tell O-bummer, Timmay and the Bernank to hide the QE eggs from WB7's basket?
Has anyone thought of the deflation consequences without QE? I get the impression that many people do not realize the economic devastation and implosion that would happen. After all, the problem is that there is not enough money to go around.
And since currency is created and circulated through debt, what happens when there is more debt than currency or the creation of it? What happens when there is no more cash flow? How many businesses would collapses because of liquidly scarcity? How would people pay their bills?
I would suggest that some of you be careful what you wish for. I am not for QE but at least QE buys time for those people in the know, as Ironic as it seems. And it may even grant a small window of oppertunity to end the fiat currency nightmare on a gradual, less destructive, bases.
Just because you have "expanded" the monetary base DOES NOT mean banks or people will "invest that cash"...... this is (also) a non-linear function of other variables, like interest rates, (nominal gdp has a role in there too).
Historically, post war, the lower the interest rates, the more "cash on hand" people are will to hold and NOT invest....
go read the article....
http://www.hussmanfunds.com/wmc/wmc110124.htm
There is a long weekend. FOMC meeting on 26-27 of April with first Bernanke's press conference ever afterwards. What will he try to spin? Increasing rates would be incredible turnaround, is there anything they can do which is not so dramatic but kills silver to allow JPM etc. a relatively decent exit? Just say firmly there will be no QE3? (not really meaning it).
That's about the only thing you've got right. However the Fed definitely is not out of touch with its masters at the TBTJ banks. None of the Fed or Treasury moves have been inexplicable.
They're not going to announce any bombshells on the 27th. I'd love a hawkish announcement burying QE and raising rates. It would cause a gigantic correction, granting an opportunity to BTFD.
A hawkish lie would only just sprinkle more diarrhea on their reputation which is already floating in the pool under the outhouse. Everybody knows there has to be 0% interest and QE-infinity at least until after their puppet Obama is reelected, so a public renunciation would simply be a bluff that shocked the markets and hurt reelection chances.
If I thought you were right, I'd go to cash on Monday. But you're wrong so I'm going to stay long in miners and energy.
Fed bashing is fun but not so good reality.
Most of the price inflation is just good old supply and demand. Most of it is expressed in commodity futures contracts which have a short for every long. Further, the amount of money to play the game or hedge is a fraction of the face value of the contract. This simple physical fact of futures trading is mostly too much for the mental capabilities of fed critics.
There is a problem in defining inflation, but to me, like most, cost of living is part of inflation. Inflation is more than wages going up. It is also part of the equation that bad crops, too many consumers, peak everything is not just inflation but a deeper problem. One that few want to face. Include the erosion of global warming.
There is a[ problem is huge pools of speculative funds in the hands of a few and lack of rules, or lack of will to regulate these revered "animal spirits".
Austrian econ is a psychological theory rather than a empirical exercise. Keynes said that Austrians were nuts and debits must be paid back in real and contractual terms. Tax cuts do not pay for themselves, exporting profits, wages, taxes is not good for the nation. We have lost the other side of Keynesian formula, the pay back part.
Most of us played Monopoly. We all started the same but in the end there was just one winner. It is a math thingy. Not taxing the rich is historically a societal dead end, witness the Middle East, or the United States.
She's a fool. She is wrong on silver and wrong on this. Bernanke and his henchmen will continue until there is nothing left. They should mark the QEs like Super Bowls, QE XXXII.
As Prechter says, when the market goes up, the Fed is in control...when the market goes down, Fed has not control.
When the market commences the primary wave 3 down (we are at the cusp of it's start); the Fed will be perceived as having been the cause of the swift plunge to levels lower than March 2009.
The Fed is very nervous about this happening to them because when the market, which is greater than the Fed, goes against them, the Fed will realize their demise has started.
This Dian Chu knows all this and still shorted silver...wtf!
Question: If Congress raises the debt ceiling in order to allow the federal Government to continue to function (and spend) won't that increase act as another round of QE?
Yes. Government deficit spending has been stimulative for thirty years. I started with Raygun.
gh
'There is no housing bubble'='rising prices are transitory'
Rising prices up the ass will transit up your ass
i wonder when the next pissed off nut-job citizen will go insane ? maybe the fed will be the objective?
A girl can dream....
This article like most things related to the economy and all things FED has some truth and some falsehoods. The falsehoods are a result in personal bias or lack of sufficient knowledge to correlate TPTB and their whipping boy Benobo.
DaddyO
To get a sense of what's involved for the Fed to raise rates even a quarter of a point, read Hussman's excellent article on liquidity preference:
http://www.hussmanfunds.com/wmc/wmc110411.htm
The upshot is that Plosser's estimate of about $125 billion in asset sales for every 0.25% increase in yields is a reasonably accurate overall average, but the profile of required asset sales is enormously front-loaded. The first hike will be, by far, the most difficult. In order to achieve a non-inflationary increase in yields even to 0.25%, the Fed will have to reverse the entire amount of asset purchases it has engaged in under QE2. Indeed, the last time we observed Treasury bill yields at 0.25%, the monetary base was well under $2 trillion.
Not only would the Fed have to stop purchasing Treasuries (likely creating a dislocation simply by removing themselves as the largest buyer), but they would have to SELL T's/Agency paper very rapidly in an amount equal to QE2 in order to raise rates a freakin' QUARTER OF A POINT (sans inflationary pressures).
Inconceivable. I'm not sure who's trapped more at this point: the Fed with their massive balance sheet and the IRX near 0% or silver bears who are short an entire year's production with no metal on hand.