Mike Krieger Explains Why QE 3 Will Merely Keep The Lights On

Tyler Durden's picture

From Mike Krieger of KAM LP

Whenever the economic life of a nation becomes pre¬carious, the central government is forced to assume additional responsibilities for the general welfare.  It must work out elaborate plans for dealing with a criti-cal situation; it must impose ever greater restrictions upon the activities of its subjects; and if, as is very likely, worsening economic conditions result in polit¬ical unrest, or open rebellion, the central government must intervene to preserve public order and its own authority. More and more power is thus concentrated in the hands of the executives and their bureaucratic managers. But the nature of power is such that even those who have not sought it, but have had it forced upon them, tend to acquire a taste for more. "Lead us not into temptation," we pray -- and with good reason; for when human beings are tempted too enticingly or too long, they generally yield. A democratic constitu¬tion is a device for preventing the local rulers from yielding to those particularly dangerous temptations that arise when too much power is concentrated in too few hands.

- Aldus Huxley, Brave New World Revisited

A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself. …He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist.

- Marcus Tullius Cicero (106 BC—43 BC)


QE3:  It Will Merely Keep the Lights On

This is a piece that has been festering in my head for quite some time now and I was waiting for the right moment to pen it.  That time is now.  In some ways The Bernank made a huge mistake by not launching QE3 right away when he had the chance.  Now don’t get me wrong, I am not in favor of any of this nonsense and I think The Bernank’s profession needs to go the way of the dodo bird, but I mean from the perspective of a Central Banker I think he made a big mistake by taking a breather from at least the printing and manipulations that they admit to.  The reason I say this is because up until the last month or so The Fed had been essentially telling the American sheeple that all was under control and that since The Bernank had studied the Great Depression and Japan he could save us from all the mistakes that were made back in those less enlightened times.  The Fed was saying that they could pull off the equivalent of preventing a serious hangover for someone that chugged an entire bottle of tequila.  They basically claimed to have found a way to break the laws of the universe. 
   
Unfortunately for them, the cruel forces of reality have intervened and proven that they actually did not figure out how to change the immutable laws of physics.  This truth became abundantly clear at The Bernank’s most recent press conference (which if he is smart will be his last) where it became all too clear that even he comprehends on some level that his theories and in fact his entire life has been a complete waste of time and energy.  That would be ok if he were confined to some University lecture hall; however, his lunacy was unleashed on the entire planet and we will all suffer the dire consequences of it for many years to come.  He has basically shoved another bottle of tequila down the throat of the already passed out drunkard and now he not just unconscious but is DYING. 

The response by TPTB to the utter failure of QE2 and everything else these mad intellectually bankrupt central planners have done was to try to smash commodities.  First, they released oil from the SPR in an act that more than any other proved to me we are in now in the final stage of this thing.  Not only was it pathetic in its desperation to anyone that knows the commodity markets but it was an utter failure.  For example, wholesale gasoline prices are now 5% HIGHER than they were the day before the raid.  Then just last week there was the crop planting data, which everyone I talked to involved in the agricultural sector thought was a complete sham.  Nevertheless, the “data” was used to create a 10% plunge in corn and 9% smash in wheat.  Of course, China was reported to have been a size buyer on the weakness.  How convenient.  What a disgrace.  This thing had TPTB fingerprints all over it and that is exactly why I do not participate in futures markets at all.  It’s a giant controlled game in the short-term.  Nevertheless, grains prices are of course moving back up again and I expect a huge spike in food prices in the months ahead related to weather that has already occurred around the world and the dire flood situation on the Missouri river.  More importantly, if TPTB continue to play their little games in the commodities futures markets we are going to have actual shortages.  In oil and in food in particular.  They are playing with fire.  Big time.  Reread the quote at the top by Huxley.  Whenever anyone one claims they need to do something for the “general welfare” run the other way as far and as fast as humanly possible.  That is the line of every tyrant and wanna be dictator.     

Ok, so time to talk about what is next.  The Bernank has already gone too far and there is no turning back.  There will be QE to infinity until the point where the system collapses on itself, which is probably not too far off once the next round of official QE is started.  What form this may take is anyone’s guess but as I mentioned in a recent email, the whole rate cap idea makes the most sense since it will allow infinite QE to occur without having to announce subsequent iterations.  The simple fact that they tried to pretend QE would end and then tried to raid commodities to create the justification for it later on demonstrates to me how much trouble we really are in.  If The Bernank had merely gone ahead and continued the program he had a CHANCE of perpetuating Disneyland for a little longer at least.  Instead, he is praying that the economy can stand on its own, which of course it can’t and so then when he launches into QE3 after the economy weakens and proves QE1 and QE2 did nothing to create a self-sustaining recovery the entire mindset and understanding going into the next money printing party will be entirely different from a psychological standpoint.  QE3 will not lead to confidence or anything even similar to the last rounds.  Rather it will be used to basically “keep the lights on.”  More than anything it will serve as that proverbial “bell” that will ring and in the minds of the savviest and wealthiest people on the planet to get the hell out of the system while they can.  This is inevitable.  It is already happening.  The stampede is yet to come.  But come it will.  It is time for everyone to take additional steps whatever that may mean for you personally.  I know I am.   Don’t get gorged. 

Things to Read

There are two pieces I suggest as must reads for the weekend.  First, I have attached an incredible piece by the always brilliant Brodsky and Quaintance.  Second, the latest from Martin Armstrong.  Read it here 

One last thing, given the market action today I would expect some sort of major desperate move by TPTB on Monday.  Whenever we have had days like this that his what they have done.  Brace yourself indeed.  Have a great weekend.

Peace and wisdom,
Mike

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coppertop's picture

I like stimilus

nope-1004's picture

Stimilus?  Do you teach spelling in some USA grade school?

 

Good stuff Mike, appreciated as always

coppertop's picture

I'll bet you read every word too.

narapoiddyslexia's picture

gorged? Slow down, dude. It's "gored," surely.

mynhair's picture

Perhaps he's thinking of the Gorge at George concerts in WA.

coppertop's picture

look at her learn to rope and ride

Harlequin001's picture

that bull doesn't look very happy does it...

eureka's picture

Who - in our socio-financial power battle - does the bull symbolize?

"Whenever anyone one claims they need to do something for the “general welfare” run the other way as far and as fast as humanly possible.  That is the line of every tyrant and wanna be dictator."

Well, never the less, I claim that the general wellfare would be well served by anyone who kills the financial and all other bull markets before they kill themselves. Have mercy on the bulls; euthenasia and assasinations now, please - if not for any other reason than to fulfill the subconscious desire of the US masses, who gobble up Hollywood assasination flicks 24/7.

Wanna rule the world? Bomb Wall Street! Life is just like a computer game - from Microsoft or Sony or some other mafia-scam, tax-evading corporation - ONLY BETTER; REAL BLOOD.     

SilverIsKing's picture

Who doesn't like to get stimulated?

deselby's picture

Speaking of spelling, I think Mike meant gored not "gorged."

TruthInSunshine's picture

The Great Deleveraging is going to roll in like a tsunami, and regardless of inflation, stagflation, deflation or hyper any of those, the result will be an Economic Depression.

Actually, some quite bright people (whether they're early or wrong, time will tell) have made the claim that the first waves have begun to roll in upon the coastline.

CompassionateFascist's picture

Real unemployment now >20%. That IS a depression. What's coming, they'll have to invent a new name for.

konputa's picture

I'm not going down with the ship. Nope, I ain't going. Sing along.

 

http://www.youtube.com/watch?v=KQ1GReZaB7E

Dr. No's picture

The picture cracked me up.  For next year, Spain should announce no medical attention to bull runners due to austerity.  Perhaps this would cause participants to conclude tormenting a wild animal and then running away in the name of fun is dangerous?

Harlequin001's picture

Nah, it takes intelligence to work that one out...

Youri Carma's picture

Sherlock : Economy moving in the wrong direction ahaahahaahaahahahahaha

“First, we need to get America back to work” – No kiddn’ what a brilliant thought but how? lOlz no way of doing that while all the jobs went to China and the Worldeconomy lays in shambles.

Dr. Richard Head's picture

Come on Youri.  You have been here long enough to know how. 

Step 1 - Government needs to stop diverting productive assets to non-productive ventures (AIG, GM, Greece, Goldman, Freddie, Fannie, etc.)

Step 2 - Interest rates need to be based on savings rates in order to spur savings.  The Federal Reserve needs to get out of price fixing the cost of money.

Step 3 - Reinstitute actual accounting where assets are assets and liabilities are liabilities.  None of the new age hiding the pickle accounting.

Step 4 - Discontinue all stimuli through all shadow banking avenues, including overt primary dealer bond stuffing operations.

Step 5 - let the chips fall where they may.

Step 6 - repeal all legal tender laws and fractional reserve lending.

Sure it will be painful short term, but we could actually get back to work in the mid-term.  This dancing on the casket shit that the central planners are pulling needs to stop.

FreedomGuy's picture

The problem is that in a political economy (which is what we have now) there is far more money to be made in money than in producing anything. With heavy currency and monetary interventions along with political favors the productive class is dieing a slow painful death and relocating overseas. Meanwhile, Sachs, Morgan, banks and the like can and will make money all the way down. They will even design the exit strategies.

Central planning, political economies, statism...it's a great thing if you're in the welfare, warfare or financial classes. Everyone else loses.

Dr. Richard Head's picture

Dead on with your analysis.  The plan which I outlined,  not my ideas per se, would be the cure, but the status quo will not allow for it to happen.  Iceland - here I come.

DosZap's picture

Like Volcano's huh?.Temperate clime.

Guess you takes yer chances, where ya take em'.

iinthesky's picture

Yeah.. and how about the people wake up to the fact that THEY are the creditors to the corporation called the USA and how about we get first use of money and give the banks a cut of the rates instead of the other way around where they make ridiculous sums of credit off our backs and share a dollar out of every ten thousand-- maybe, if they feel generous or they haven't dug themselves into the abyss. An entire shift of the consciousness paradigm is needed if this problem is to be fixes. Otherwise these crooks will do this untill the music stops and then dismantle everything only to replace it with something much much worse.  Most of use won't even know till its already complete and operating for 10 years. Then some will wake up and say "hey.... wait... a... minute!"

Those folks will be SWAT teamed and disappeared. It's all good.. nothing is wrong.

iinthesky's picture

Yeah.. and how about the people wake up to the fact that THEY are the creditors to the corporation called the USA and how about we get first use of money and give the banks a cut of the rates instead of the other way around where they make ridiculous sums of credit off our backs and share a dollar out of every ten thousand-- maybe, if they feel generous or they haven't dug themselves into the abyss. An entire shift of the consciousness paradigm is needed if this problem is to be fixes. Otherwise these crooks will do this untill the music stops and then dismantle everything only to replace it with something much much worse.  Most of use won't even know till its already complete and operating for 10 years. Then some will wake up and say "hey.... wait... a... minute!"

Those folks will be SWAT teamed and disappeared. It's all good.. nothing is wrong.

Josh Randall's picture

Paper Pozi Traders starting to get a spotlight on them. I wonder if the fact Sprott is based in Canada and this is happening there is any coincidence

Dr. No's picture

Actually, i view it as an attack by gold haters on gold bugs.  Are you telling me if JPM Canada had the same issues, Quebec would have went after them?

Josh Randall's picture

I am probably pollyanish but I believe at some point the worm will turn in the paper PM ponzi. So someone at some point will climb into the ring with The Morgue in the US, Canada or elsewhere

bigdumbnugly's picture

at least it appears the bull is taking the time to pleasure the doomed citizen before he finishes him off.

funny how art imitates life like that.

Harlequin001's picture

Yeah, now that's what I call 'feeling horny'.

Ouch...

baby_BLYTHE's picture

the money printer will continue to print, that I am sure

http://www.youtube.com/watch?v=Ns2QEqOUi4A

Dr. Richard Head's picture

As sure as an Irishman loves whiskey.  Just wish the reset would makes its way in ernest.

Herbert_guthrie's picture

I don't like whiskey, much prefer beer.
Do you know what your head feels like the next day after listening to fiddles all night drinking whiskey???

As far as waiting on the reset, probably not going to happen.
This won't be like an elevator with a broke cable, falling to the bottom; more like an escalator slowly descending.

Prometheus418's picture

I'm Irish, and I like Full Throttle and Raspberry Vodka- but it is green, so I guess that's all right.

DoChenRollingBearing's picture

@ baby_BLYTHE,

Since there is no will to take the steps necessary to fix our financial system, I regret that I have to agree with you 100%.

Gold is talking to us...  Let's listen and act!

SheepDog-One's picture

But no matter how much they print now, it will only keep the lights on in the rigged casino. Game over people.

Westcoastliberal's picture

While I agree 100% with your post, Mike, shouldn't it be "gored"?

Double down's picture

The second "g" is transitory.

LetThemEatRand's picture

It's also a softpatch (silent) g.  Doesn't count.

akak's picture

Naw, it's just a stray green shoot of a consonant.

cossack55's picture

Looks like that bull is gorging to me.

Silver Dreamer's picture

It's a glorious gory gorging.

cossack55's picture

Looks like that bull is gorging to me.

Its a Wall Street bull, you know, the only carnivorous type.

Gold Man-Sacks's picture

Could someone please explain why the Fed's manipulation of longer-term interest rates (Operation Twist 2) is so much worse than what they do now with their short-term-interest open market operations?  Does it simply take much more money creation to control longer-term rates?  thanks.

Sancho Ponzi's picture

The Fed doesn't need to create any money to control any note/bill/bond rate. All that is required is for the Fed to notify dealers that they will always and without exception defend a certain rate on (x) year treasurys. If the magic number is 4.5% for the 30 year, that's the ceiling, and there's nothing dealers or the 'market' can do about it. 

Like a ponzi scheme, this works, until one day it doesn't.

Added: It is commonly believed central banks cannot control long-term interest rates, but if you've got a bunch of Bernanks who make it known they will purchase trillions of 30 year bonds if that is what is required to keep rates down, the 'market' no longer comes into play.

Gold Man-Sacks's picture

I thought the Fed would have to create the money to buy the bonds, as you stated at the end of your comment.  In regards to the first part, are you saying that at the auction, they simply won't go any higher on the yield than a specified number?  Wouldn't buyers simply not purchase them then?