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The Depressing Effect Of QE
Via Mark J. Grant, author of Out of the Box,
Sitting In The Middle Of The Desert
It is rather like sitting in the middle of the desert. Nothing but sand. You can hope for rain and you can wander around aimlessly looking for an oasis but you are pretty much stuck with sand. This would be a fairly accurate description of the bond markets these days. Nothing but sand.
We are a scant 40 bps off the low yield for the ten tear Treasury. We have $100 billion of new sand being pumped in by the Fed each month. Our desert doesn't get much wider as defined by new issuance and so one dune is heaped on another, the compression continues and yields, even from here, will decline. As equity prices are forced up; yields and spreads are forced down. Then any "event," which would be negative for equities would be a positive for Treasuries and so the unrelenting pressure continues unabated and could grow far worse if something happens.
Our sand trap is a fabulous world for borrowers and issuers and a miserable world for investors. The general thinking usually stops here but there is more to this story than that. Over a period of time wealth declines as the bonds markets hold five times the assets of the equity markets and so the lack of yield, of income, begins to take its toll on consumer spending, on corporate revenues and then on profits and on the ability of those dependent of savings to maintain their standard of living. The continual flow of money has helped the banks and helped corporate borrowers but it has not filtered down to the savers and, in fact, their position has been lessened by what the Fed has done.
Someplace on the timeline there is a line of declination coming. America's unemployment rate, 11.6% currently, and not the funny money bogus number provided by the government, is one piece of data showing that all of this money is not making its way into the Main Street economy. As a matter of fact, people are getting poorer while banks and corporations are getting richer and so the ability of the consumer to keep buying goods and services is declining which pushes on the deflation part of the equation and the consequences will eventually be felt back at the corporate level as the wheel continues to turn. Wall Street tends to concentrate on the positive effects of money creation but there are also negative implications that accompany the way the Fed distributes its money. The longer that the Fed continues on with its grand scheme; the poorer people and pension funds become because the bond markets lever their effect at five times greater than the appreciation of the equity markets.
Consequently if driven by an event or driven by a meaningful decline in corporate earnings as the consumer cuts back on his purchases as mandated by his fall in income; real trouble begins. If the rise in equities no longer picks up the slack and if yields break down past the old lows then it will not only be corporate revenues that falter but the GDP of the country while our national debt increases. The sand trap has been dug by the Fed and it is now just a question of when the little white ball gets chipped into this treacherous part of the course.
We are wandering in the desert. There is no Moses in sight.
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Oh, Moses is in sight... he's directing God's work (the creation of 'sand' from nothing).
Sorry ~ But 'Beau Geste' might be a more accurate depiction...
To paraphrase, "Sand is part of life."
Yes, but even sand, cannot be conjured out of thin air.
Or being stranded on QE Island, the modern day version of Gilligan's Island.
"The Wizard of Wall Street strikes again" Thurston Howell III
Yes, but a lot of snakes!
Moses drowned in the green sea.
"where's your messiah nowwwwww flanders?" Chief Wigam
I saw Bernanke with two tablets....but I think they were aspirin..
+1
And that sand is going to get in your crack....
Need to get rid of Bernanke an Obama and most of the criminals on Capatal Hill , French Revolution style
Just hang in there, you'll get your wish.
Trillons of dollars exist and more are being printed. None are going into the economy. I suppose there is an "ism" of some sort at play. But, this is just bad for the economy and bad for the monetary system.
BINGO. one of my all time favorite comments... that 700 Billion was to "foam the runway" for the banks... Timmy Geithner. If they can't give 700 Billion to free up credit to Main Street, why would they give us Trillions?
Did Paulson and Geithner explain to the masses that TARP was for "foaming the runway?" and not for you and I? or do we BANK on short term memory loss 'round herr...
1
And the beat goes on.
Ball of confusion.
If you think that QE has problems in the United States just take a look at how it has misfired in the UK!
Mind you maybe the most powerful effect has been the effect on UK pensions that it goes on to describe
Our sand trap is a fabulous world for borrowers and issuers and a miserable world for investors.
Fabulous only for the very few, large and already well capitilized entities that are actually able to borrow in any kind of size.
In poker, all else being equal, the player with the deepest pockets always wins as he can afford to make a lot of small bets that are big relative to what his less well capitalized opponents can afford. The same thing is playing out in real estate (and other markets) right now as well capitalized players borrow more for cheap and trade that money for hard assets.
Excellent analogy----Thomas Jefferson said it a little differently but the end result is the same:
"If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered."
Thomas Jefferson
And for the collectivist Yankees that say Thomas Jefferson did not say that, fuck off--I live in Charlottesville and I have seen the text in print --- he said it so go fuck yourself!
A little surly this morning WSP? As another founder said, "Surly to bed and surly to rise..."
(BTW: collectivist Yankees beat the Rockies last night)
For “homeless” (a suspiciously modern-sounding term…but maybe not) it would be more accurate today to substitute: “dependent on a self-aggrandizing government to which all else in life becomes subordinate.”
i have ur answer to fix gold bugs,QE99 and all them papperless shills.........presenting to the masses/sheep....
Smart Paper Makes Traceable Money Possible.....yeppieA simple act of cash changing hands could become a lot less private. U.S. researchers have developed a new way of embedding traceable chips within "smart" paper—raising the possibility of banks and governments guarding against counterfeiting and even tracking the usage of paper money.
The new method of embedding radio frequency identification chips (RFID) in paper came from North Dakota State University in Fargo. Researchers used a patent-pending technology—called Laser Enabled Advanced Packaging (LEAP)—to transfer and assemble the traceable RFID chips on paper. Such "smart" paper could lead to new types of banknotes, legal documents, tickets and smart labels.
"I believe our scheme is the first to demonstrate a functional RFID tag embedded in paper," says Val Marinov, an associate professor of industrial & manufacturing engineering at North Dakota State University, in a BBC News interview.
His group is presenting the work at the the IEEE RFID 2013 conference in Orlando, Fla., from April 30 to May 2. He also explains the method in additional detail in a press release:
http://spectrum.ieee.org/tech-talk/semiconductors/devices/smart-paper-ma...
i s*&t u not,
This is bad for Congressional bribery.
Congress will switch to Bitcoins...but outlaw them for 'general use'...they'll call it research...!!
No one has insurance, but Joe Biden has AWESOME Senate-bought Choppers...!!
Yet another reason to transact honest money.
Excellent summary, as always Mark. I do think it is important to add that this is all by design. The criminals at the Federal Reserve and their puppets in the White house KNOW EXACTLY WHAT THEY ARE DOING and the "effects" you are writing about are all part of the design.
The criminals at the Central Banks and their collectivist supporters all want the same thing------99% of the resources and wealth for themselves while we fight over the scraps. The control freak collectivists that have seized our country through banking, education, media, and government are not stupid---they KNOW EXACTLY WHAT THEY ARE DOING so when one writes about the moral hazards of what the criminals are doing it is only for the benefit of waking up the sheeple but sadly, it is too late for that.
I do not believe that the damage is reversible, short of a violent revolution, because the collectivists that now run our banking, and by extension, everything else via printed money will do what they please whether the majority likes it or not. WE can all sit around and talk about an overinflated market, unemployment, etc., but in the end, these criminals control EVERYTHING via their fiat dollars. Like the famous criminal Nathan Rothschild said, if you control a nations money you care not who makes its laws because you control the nation. What we have in Amerika is far worse than any other criminal, dictatorial, centrally planned nation in the history of mankind. The Federal Reserve has destroyed what was once a great republic and put in place a tyrranical, corrupt, criminal government, education system, and media whose only goal in life is world domination-----it is very unlikely it can be stopped at this point. People will say that which cannot go on won't all they want---if it makes you feel better by all means lie to yourself. The reality is the Central Banks can buy whatever they want, and most humans would sell their own mother to make a dollar-----not rocket science.
And that is why they will end up with nothing but a 3rd world barter economy.
Great post WSP, I'm glad you're feeling better. I agree 100%
Any suggestions on what I can do? I heard from someone on ZH once a long time ago that physical gold might be a good position...
Once they have it all.....where do they go from there? Will they hunker down in their underground enclaves while the bankster wars to determine the last bankster standing begin?
STARVE THE BEAST!!!
They have no idea what they are doing but they do it instinctively. They need FEAR in their lives
Then they fully implement Agenda 21, placing us all in compact hive-clusters (cities); travel severely restricted (papers, please); let the rest go back to nature.
The name of the game is problem-reaction-solution. They create the problem, nurture the desired reaction, then introduce the pre-engineered 'solution' (which was what they actually wanted all along).
Socialism/communism is the classic example of this, and why communist revolutions have traditionally been supported by uber-capitalists. They got much bigger government with the New Deal, but not enough (they want total government). Notice the Marxist rhetoric being hyped more and more by the Soros type snakes as we get nearer and nearer to the big crash. This time around the "New Deal" will be on a global scale.
No New World, no Promised Land this time... Cornered, bitchez.
"The plan, which will be presented to the European Commission, is expected to include tax increases, banking sector reforms and privatisations.
Slovenia's mostly state-owned banking sector is suffering from mounting bad debts and the government has struggled to borrow money.
The country's economy has been in recession since 2011."
"The country is also planning a "bad bank" to take on the financial sector's bad debts.
The governor of Slovenia's central bank, Marko Kranjec, is also advocating the privatisation of some banks."
http://www.bbc.co.uk/news/business-22462604#sa-ns_mchannel=rss&ns_source...
sounds like 'bail-out lite'...but "Bail In Heavy" for depositors...all without riots...neat trick...!!
"The country is also planning a "bad bank" to take on the financial sector's bad debts.
It is called ECB
According to court filings, Oreck, along with eight affiliated entities that filed for Chapter 11, "are in a precarious financial position." The company is losing money, sales "are quickly deteriorating," the filing states, and it "simply cannot generate cash fast enough to cover expenses as they arise."
http://www.usatoday.com/story/money/business/2013/05/07/oreck-files-chap...
More green shoots.
Oreck products suck
QE for banks lead to lower standard of living for all the citizens of a country except for the beneficiaries of the bail outs. The poor people in any country live hand to mouth and do not contribute to tax revenues. The others who earn their living by small businesses or salaries pay taxes at a much higher rate than the rich individuals or big businesses. This is due to the loopholes in the taxation system which enable them to declare maximum profits in countries which have the least tax rates. So effectively in the long run the governments route the money collected as taxes from the middle class of people to the banks so that the bankers can enjoy enormous bonuses. We are in times of privatizing the profits and socializing losses for those who are well connected to the governments and the law makers.
http://www.marketoracle.co.uk/Article40231.html
Well stated khanna.
Yes, it is depressing. No matter how hard you work and prepare, assets are being and will be confiscated directly or indirectly. Yes, central banks and fiat currency are fraudulent. But the real depressing part is really the effect it has had on politicians. There is now no more motivation to be responsible or accountable. They know the tap is running and (they think) it won't stop or will be increased. We are standing on the train tracks, we can see the light of the train coming and we are not reacting. That is depressing because it means either that we're stupid or we just know that we're fucked in this rigged game, so why bother.
I have a fantasy where Ron Paul and Beppe Grillo (and others?) team up and do world tours speaking about the fraud of monetary policy to the masses. The change can't happen slowly, all of the central bankers need to be thrown out on their asses at the same time. We can't give them years to fuck around with currencies and markets and create distractions. Just get them the fuck out. It is easier to have legislators onside, hence the need to have something like a Paul / Grillo coalition try to somehow wake up the masses.
Yes, it is depressing.
Good points----the criminals will offer NO REFUGE. Whatever you buy to try and protect yourself they will either outlaw it, confiscate it, or both. They will change the rules whenever they want and as you indicated the politicians they make the laws are either in their back pocket or out on their ass. Most politicians now realize we live in a banana republic, that is why none of them will come out publicly to expose the massive fraud, corruption, and outright thievery that now takes place.
The sad thing is the window of opportunity for restoring the republic has now closed. There is very little freedom left, and there is certainly no freedom of thought. Think about it. America constantly brags about what a great education system we have, YET, ask the average college student about the Federal Reserve, the MOST IMPORTANT INSTITUTION IN THE WORLD, and they look at you with a blank stare. Heck, ask the average economics professor and he will talk about supply and demand---THAT MEANS NOTHING IN CENTRALLY PLANNED ECONOMY, yet, he won’t talk about the Federal Reserve either because he is too ignorant or he knows who butters his bread. Either way, it is pathetic and sad. That really is all you need to know. When the average citizen lives their life in debt while their brothers and sisters fight banker’s resource wars across the continent, AND, not ONE OF THEM can tell you the ROOT CAUSE---the Federal Reserve----well, you know it’s over!
I can justify previous generations being ignorant about the criminal banking cartel---they DID NOT HAVE ACCESS TO THE INFORMATION like we do---but there is NO EXCUSE for the current education system and public not completely understanding the cause of their enslavement. It lies at the steps of the Federal Reserve---they are THE ROOT CAUSE----they are THE PROBLEM.
Agreed all around. I agree that it's too late to fully restore. What I am waiting for is when some "unexpected" event happens (ie. failed US bond auction) and the Fed says it is not buying, we should all ask "Why the Fuck Not. How the fuck can you lead us to the cliff and now let us fall off? At that point, it is at least possible some of the politicians will turn on the Fed and say "Save us. That's what you do. Print more money." I guess this is all just another way of asking how the Fed "unwinds" QE.
Anything that is done can be undone, Keep the faith, in whatever way you see fit,
Sounds apropcryhal but think about it. The current regime in monetary/fiscall/taxing policy is not cast in stone.
This is not Moses, that was only a lesson that we either learned or spurend.
Please read this aloud at the beginning of the next Fed meeting...
Depressing? Pish-posh! Not according to wall street. Stocks never been higher before. And I agree with Terminus, Moses is there allright. His name is Shalom. Everything is just fine. And even if there's armageddon, Moses and his cronies have already long gone.
Call it idiotism....promulgated by the banksters in control of the Washington, D.C.. idiocracy.
STARVE THE BEAST!!!
"STARVE THE BEAST"
Elimination of the Fed's only product is a way to start, http://www.youtube.com/watch?v=WCbrOzhwkXc
"Governer Herbert of the state of Utah, signs House Bill 157 Currency Amendment. Further legislation is in motion to advance the use of Silver and Gold as a competing currency with the US Dollar. The Bill can be viewed at: http://le.utah.gov/~2012/bills/hbillint/hb0157.pdf"
A good first step. Hopefully there are others to follow.
AZ needs to get rid of the RINO Brewer, who vetoed similar legislation in AZ. A phony in the AZ governor's mansion....in the mold of Juan Mexcaine.
STARVE THE BEAST!!!
you know, it's a bit funny, someone named hootowl, with the avatar you have, complaining about DC idiocracy.
This isn't complete. The sand does not fall evenly. It doesn't reach the private sector and small business economy.
However, like ancient Pyramids, it piles hide and wide on centers of the policially powerful and connected.
With BS Bernanke as captain of the FED ship of fools, don't look for improvement any time soon.
Bernanke is the real President, Obama is simply the man in the big white house
No Moses just a bunch of joo bankers.
It is strip-mining household savings and leaving scorched earth behind. The FIRE SEctor is rapacious a sort of Moloch extracting every last grain of corn.
The System is like a Juggernaut bearing down on people and the response will be violent. There is no hope for ballot-boxes. The tsunami will come and catch them all by surprise and it won't be adolescents with pressure-cookers.
Greenspan and Bernanke have made for a very dangerous and volatile world.
Just look at it like a tax. Thanks Barry
Perfect, going to work on my bunker play.
Ben Bernanke’s secret dream in life is to have his picture on the new $1,000 bill. I bet he’s got a mock-up in his scrap book already.
Everything is being inflated on paper by more paper money. But, it’s still the same pile of crap underneath. If you put a crust on a tin full of shit, what you get is a shit pie. It looks nice, but, I wouldn’t want to eat it.
Americans believe in technological solutions to everything, and have forgotten completely what real political and economic change are all about.
The reason is because we've been so stable for so long. The "great debates" happened long ago, and, in the minds of Americans, were settled. Empires failed, Communism failed, and America was left standing as the hyperpower at the end of history itself. Now we can all surf for porn and go shopping forever, with infinite digital money creation, and the banks and corporations will make us all rich! Hallelujah!
But we are returning to history, to conflict, to the great political and economic questions, and they are coming back with a vengeance that is breathtaking to behold.
My guess is eventually another civil war. I don't see any other way out.
Since everything is wine and roses again and the job report data is real and solid, we don't need QE to infinity and Ben can confidently raise the interest rate to 5%. FREE AT LAST!
WSJ reported today that junk-bond yields are now under 5.00%!
The Era of Interest is now offically over!