Guest Post: The Fed Wants You To Beg For QE3

Tyler Durden's picture

Submitted by Brandon Smith of Alt-Market

The Fed Wants You To Beg For QE3

 

The psychological effects of the Dow are undeniable. When
the average investor or even consumer sees green, life is good, even if
every other indicator in the economy clearly says otherwise. For the common Dow lemming, “green” supplants reason, mathematics, instinct, and blatant logic. If
mushroom clouds came in that particular shade of bull market green,
nuclear holocaust would be welcomed with beers, barbeque, and jubilee. Green in the Dollar Index is no different. Many
market joyriders and MSM parrots decree victory for Team Dollar without
even a remedial understanding of the implications of dollar strength
being measured against multiple faltering currencies across the globe. Just
because the Euro, for instance, is nearly as superfluous as the
greenback, this does not mean the dollar is a stable or healthy currency
by default. They are BOTH screwed. But hey, as long as that little ticker points up, all is right with the world……right?

Red is the ultimate party stopper. Red makes Americans pause and reflect. It
makes them question their economic sensibilities, their political
loyalties, their futures, perhaps even their choice of marriage partners
or favorite football team. The sight of red in the Dow brings to mind thoughts of recession, depression, collapse. At
bottom, red makes our government and the people charged with
safeguarding U.S. financial good-time-tootie-fruitiness look bad. Red?! Red?! Vote the bums out!

Given this American predisposition to ignore all
other indicators except the Dow and sometimes the DXY, you can imagine
why the private Federal Reserve in tandem with the U.S. Treasury has
focused so much of their attention on stimulus measures designed to keep
these two indexes predominantly in the green since the derivatives
crash of 2008. They have done this through direct and
indirect injections of fiat into market systems which have acted as a
buffer; multiple yet temporary patches in the hull of a scattershot ship
on the verge of being swallowed by the voracious waters of the briny
deep. The problem is, after over three years of this activity, the opiate of fiat is starting to lose its euphoric aftertaste. Like
some dirty track-marked heroin fiend, the U.S. economy is now nervously
scratching its rancid fiscal sores and screaming for more of that sweet
sweet fiat juice. The more we get, the more we need later down the road to satisfy our dependency.

Obviously, QE1 and QE2 accomplished nothing. The bailouts and TARP accomplished nothing. The ongoing U.S. bailouts of the EU at the American people’s expense continue to accomplish nothing. All
we have received for trillions upon trillions of inflationary dollars
created has been a few years of static 20% real unemployment, higher
food and energy prices, an endlessly imploding housing market, virtually
bankrupt states and municipalities, and the first ever downgrade of the
U.S. credit rating in history. Oh….and a wonderfully fake
bull run in the Dow, which I suppose, makes up for all the previously
listed annoyances, at least, until recently…

In past articles, I have often pointed out that if
the investment community EVER caught even the slightest inkling that the
Fed might end stimulus measures and let the markets stand on their own,
they would jump ship and the Dow would collapse back to levels seen in
2008 or worse. Well, with the highly inconclusive and
vaporous announcement of “Operation Twist”, a program designed to sell
short term treasuries in exchange for long term treasuries (???), the
Fed sent just such a message. One might wonder, especially
after the U.S. lost its AAA credit rating, why the Fed would bother to
hesitate to announce QE3 and keep the markets plugging away? They’ve never had any qualms about revving up the printing presses before, so why change posture now?

Answer: Sometimes there is advantage in allowing the markets to bleed red too. Here are some reasons why…

Stimulus Ignoramus: Though
most Americans now understand the basics of bailouts and quantitative
easing, including many of the risks, most still think that these
programs are somehow limited, or exclusive. In reality, there is no QE1, QE2, TARP, etc. These are not separate stimulus efforts that actually started and concluded independent of one another. They are all a part of one long fiat injection into our economy that never ended. The
insanity is that a large percentage of investors actually believe that
because Bernanke did not yet announce QE3, there is no stimulus going on
today! The Fed is ALWAYS creating fiat. Some of it is reported, most of it is not. Ask yourself this: Are interest rates still at near zero? If the answer is yes, then the fiat still flows. The Fed has allowed the public to assume that injections have ceased even though they most certainly have not.

Stimulus Impotent: Even before the S&P downgrade, the markets had begun to strain and tremble. In
any Keynesian inflationary effort on the part of government, there
comes a point at which the force of debt and the force of fiat reach a
climactic peak. From then on, even the illusion of
stability becomes impossible, and both centers of gravity tear upon one
another and spiral out of control. The Fed knew full well
this point had been reached, and so, reversed its rhetoric to give the
impression that it was stepping back. Actually, the markets will deteriorate despite any Fed intervention from now on. Stimulus
at this juncture will only serve to keep the government functional
through treasury purchases while the rest of the system collapses. This is what happened in Weimar, Argentina, and to some extent Russia after the Soviet breakdown. Cleverly,
the Federal Reserve covered its own tracks by making it appear that the
inevitable Dow disintegration was somehow caused by the lack of QE.

Deflation Cheerleaders Return: Like
mythical mucous addled hobgoblins drawn to the cries of helpless
newborns, rabid deflationists have oozed back out of the muck after a
long hibernation in response to the current Dow descent to proclaim yet
again that the dollar is “too strong”, and that even more printing is
called for. As stated, they fail to understand the nature of the Fed, and the fact that stimulus is always ongoing. Simultaneously,
they actually serve Fed interests, whether they know it or not, by
promoting even more dollar devaluation as “practical”. For
some reason, many deflationists have adopted the strange and unsupported
assumption that debt somehow “cancels out” overt currency creation. This is simply not so. Yes, fiat dollars can be used to pay off a debt, but those dollars do not suddenly disappear after they have entered the system. They stay, and circulate, and collect, like mold, or a beard of bees. Neither is pleasant to clean up. Hyperinflation
of the money supply is not only possible during unregulated stimulus of
a highly indebted system, it is a sin qua non. In America’s immediate circumstance, the likelihood of stagflation is high. This
process combines the worst elements of deflation and hyperinflation
into a single, enormous, and incredibly painful boot in the ass. Deflationary purists will feel the sting soon enough…

Dollar Primacy Nostalgia: While
much of the rest of the world is slowly but surely walking away from
the dollar and dollar denominated assets, many American investors still
cling to the old days, when sour markets meant a dash for the greenback
safe haven. Could the dollar index reach as high as 77 or 78 in the course of the next four weeks? Absolutely. Does this make the dollar a legitimate safe haven? No. The
secret of the dollar index magic trick is rooted in how it is
calculated; using comparisons to world currencies that are also in dire
straights. As multiple currencies fall WITH the dollar, they make the dollar index appear as if it remains stable, or even superior. On
top of this, we still have a very active Fed printing to prop up
treasuries, which also artificially strengthens dollar sentiment, at
least until other countries which own our debt begin to dump it
completely.

Trade War Blitzkrieg: Last
Tuesday, U.S. representatives sought trade restrictions against China
in poultry markets, which might not seem like much, but the move, in my
view, was to test the waters for even further confrontation with China. A crumbling Dow has the advantage of adding pressure to the renewed issue of economic warfare. A
trade war is the perfect trigger for a treasury and dollar dump by
China, which is on the cusp of taking such action anyway because of the
violent nature of inflation within its own borders. After
several failed attempts to soften inflation by raising bank reserve
requirements, the only option left to the Chinese now is a sharp
valuation of the Yuan to increase the buying power of the citizenry. This
kind of valuation is most easily achieved by a dumping of their vast
dollar holdings, a steep devaluation in the dollar, leading to rapid
foreign capital redirection into the Yuan. China denies they would take such action, though they have openly admitted the possibility. Don’t buy it. If price inflation continues at similar levels, the Chinese will have no other choice but to take extreme action.

Thinning The Commodities Herd: Its
funny, but every time there is a pullback in commodities like gold and
silver, the same people come out of the woodwork to announce the death
of precious metals. Metals then, of course, make an
astonishing comeback despite all odds, and these men disappear again
into their respective hovels. The reason they always get it
wrong is simple; they are incapable of looking at the big picture, and
few, if any, have memories that go past last week. Firstly, in an economy at the edge of utter disaster, commodities are invariably erratic. Expect to see 10% swings in gold and silver up or down CONSTANTLY from here on out. This is not unusual. It is normal considering the circumstances. Another
element that is unfortunately deeply ingrained is the ETF markets,
which are entirely fraudulent, and not representative of true physical
metals values. However, lets get some perspective here; during the 2008 Dow drop, silver hit lows between $11 and $13. Today, even after a severe drop, it hovers near $30. There is a big difference, and that difference is due to dollar devaluation. Weak hands will buckle. The
cheap silver and gold will be snapped up by smarter buyers (Asian
investors and central banks, most likely), metals will climb back to the
mid thirties, QE3 will be announced (eventually), and from there, the
sky is literally the limit. In the meantime, the Fed has just deprived a few more people of their sound money. Silver at $30? Gold at $1600? That’s called a buying opportunity, folks, not a last chance to sell.

Fear Makes The Heart Grow Fonder?

Resistance to Fed liquidity measures has been substantial. Three years ago, no one knew what the Federal Reserve was, or even cared. Today, most of America is at least aware of its existence and not enamored of its purpose. The
latest downturn in markets, as well as seeming Fed indecision, I
believe, not only signals the next aggressive leg down in the ongoing
collapse of the U.S. economy, but also a very deliberate strategy on the
part of our central banking elite to drive the public towards a
consensus desire for further intervention. That is to say, the Fed wants us to beg for more QE, instead of fighting against it.

There is quite a bit of practicality to this tactic. If
we demand stimulus measures out of fear just to slow the Dow
hemorrhaging, then the Fed is able to deflect most of the blame when
such measures eventually go awry. The American people
become the cause of dollar destruction, instead of the Fed, and this
blame will permeate into international opinions and world views. Make no mistake, QE3 is the end of the line, and it will be announced, or at least quietly enacted. At this time, our government is operating upon the fumes of Fed fiat, and nothing more. Without it, the lights go out. The
only tool that exists, or ever existed for the government to influence
the appearance of the economy is fiat creation through the Fed. Whether we ask for it or not, this tool will be utilized. They would just prefer that we went along with the program willingly…

We cannot forget that the Fed is a haven for open proponents of globalism. The eventual goal of central banks has always revolved around a weakening of the U.S. system for the sake of “harmonization”. This
project ends with the debasement of the dollar and the loss of its
world reserve status to a basket of currencies represented by the IMF’s
SDR. For this end to be reached, the Fed MUST continue liquidity measures like QE. We don’t need to ask for it, nor should we ask for it. They will certainly pursue QE3 regardless. The trick to winning this game is in refusing to participate, or at least, refusing to play by their rules.

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mikmid's picture

I ain't begging but know it's coming because the banks will beg.

bentaxle's picture

Not even if he puts tits on it fer yuh!?

GetZeeGold's picture

 

Wasn't that what the twist was setting up....and smashing the commodities?

"Metals then, of course, make an
astonishing comeback despite all odds, and these men disappear again
into their respective hovels."

Gold's back........and you're gonna be in trouble.

http://www.youtube.com/watch?v=-cvRzlVn1Mw&feature=fvst

 

SheepDog-One's picture

Beg for QE3 due to WHAT DOW red??

GetZeeGold's picture

 

.....and thus our point is made sheep.

 

Debtless's picture

Fuck the Fed. And fuck those who suckle its teet for a living.

Andy_Jackson_Jihad's picture

You must contstruct additional ovens   /starcraft voice

turicum's picture

I thought QE3 is ok with most of ZH readers???

Freewheelin Franklin's picture

Well, if it helps bring a quicker end to this "Ponzi" system, it's OK by me.

BigJim's picture

We (mostly) hate QE, because it represents the ability of our elites to magically pick our pockets from afar..

However, as we've hedged against it, when it doesn't happen, our hedges drop in purchasing power. And if those hedges are subject to expiration (options, for instance) then the loss of purchasing power is permanent.

Hence the repeated calls to make your hedges in physical, not paper.

Mr_Wonderful's picture

The Gigantic October Stock Market Heist

is being set up.

There are now over 2 million October open put options against the S&P 500. Looks like this will among History´s  greatest transfers of wealth.

GetZeeGold's picture

 

2 million.................and 1 MFer's

 

 

SheepDog-One's picture

The Bernank put...its the FED short the market.

GetZeeGold's picture

 

Could be the BIS actually.

 

 

jjsilver's picture

How about we abolish them, then arrest them and put them on trial for their crimes, which I believe will happen eventually.

buzzsaw99's picture

your comment has been logged for further evaluation by the geek squad.

DaveyJones's picture

in order to arrest them, we must first legitimize the arm which does the arresting. The bankers run this government and most others. Our founders warned us.   

bigwavedave's picture

"Obviously, QE1 and QE2 accomplished nothing. The bailouts and TARP accomplished nothing. The ongoing U.S. bailouts of the EU at the American people’s expense continue to accomplish nothing."

 

Crap Alert: These 'programs' gave the status quo TIME to plan how they were to protect their money and spend yours.

 

"Though most Americans now understand the basics of bailouts and quantitative easing, including many of the risks"

 

Crap Alert: I did not read past this point. And nor should you.

SheepDog-One's picture

I agree, this article is pretty much nonsense. Talk about how we'll BEG for QE3 due to so much pain in the DOW, I see it up +200 in premarket....I keep asking 'wheres the drop'?

WonderDawg's picture

So many contradictions in this article, wish I had time to break it down just for kicks.

Mitch Comestein's picture

Please bitchez....I want some more.  (Oliver Twist...the Bankster)

GetZeeGold's picture

 

Never before has a boy wanted more.

 

Soul Train's picture

yes, exactly right/

this is why any equity market rally is just dust in the wind.

fact is the Fed needs a major selloff to justify it politically.

so if you are long equities, you are now warned.

 

 

duo's picture

How many bear traps will they spring before they let the market free-fall?  Looks like another short squeeze this morning.

SheepDog-One's picture

So when will the sell-off be? Certainly 'not today', as usual. 

I've been hearing we're getting a big market plunge before FOMC 1, then Jackson Hole, then FOMC2, never does the DOW drop more than 200 without it being immediately recovered!

Carrot and Stick, while everyone waits for this big market plunge theres the DOW +200 in pre-market...I'm not falling for this scam.

WonderDawg's picture

Well, you could say the sell off started at DOW 12,800ish.

SheepDog-One's picture

Yep, since DOW 12,800 or so there has been no panic at all in the public. So I dont know how this article figures the NEXT time the market drops then we'll have the required chaos and begging and pleading for QE3. In fact, the public is now totaly conditioned to expect market drops to be immediately recovered next trading session. I dont see them 'setting up fear and panic event' at all myself.

WonderDawg's picture

I think the panic is coming, but hope doesn't die easily. There is still some hope in the markets, but it's fluctuating with doubt. When doubt takes over, it will fluctuate with fear, and we'll start seeing more persistent sell-offs with less enthusiastic rallies. Panic follows after all hope has been extinguished.

SWRichmond's picture

I've been saying this for almost a year.

Always remember: if you adopt the most cynical viewpoint, everything makes perfect sense.

Snidley Whipsnae's picture

I believe a read of 'The Prince' will go a long way toward explaining Wall St... and your comment about "adopting the most cynical viewpoint"...

"Machiavellianism is also a term that some social and personality psychologists use to describe a person's tendency to deceive and manipulate other people for their personal gain. In the 1960s, Richard Christie and Florence L. Geis developed a test for measuring a person's level of Machiavellianism. This eventually became the MACH-IV test, a twenty-statement personality survey that is now the standard self-assessment tool of Machiavellianism. People scoring above 60 out of 100 on the MACH-IV are considered high Machs; that is, they endorsed statements such as, "Never tell anyone the real reason you did something unless it is useful to do so," (No. 1) but not ones like, "Most people are basically good and kind" (No. 4). People scoring below 60 out of 100 on the MACH-IV are considered low Machs; they tend to believe, "There is no excuse for lying to someone else," (No. 7) and, "Most people who get ahead in the world lead clean, moral lives" (No. 11). Christie, Geis, and Geis's graduate assistant David Berger went on to perform a series of studies that provided experimental verification for the notion of Machiavellianism."

...above from WIKI...

PulauHantu29's picture

It's obvious the Fed must print more ...deflation is very destructive and a little inflation is better...so i read....

Snidley Whipsnae's picture

"deflation is very destructive"

Yes... destructive for some, constructive for some...but very destructive for fractional reserve banking.

SheepDog-One's picture

I keep hearing about the 'big market drop' but a market drop never comes. Yes I know 'theyll make me BEG for a QE3...'Please sir, just a bit more porridge'....OK wheres the market drop? DOW futures up +200. 

Lotionboy's picture

I am begging for QE....Please Benny...Make It Happen :)...My gold will thank you 

gmak's picture
  1. Prices move before wages. Therefore deflation is beneficial to the working class - in spite of appearances. Inflation is bad for them. The reverse is true for those who have all the wealth.
  2. I don't get the contention in the article that the fed has tried to keep DXY in the green. It seems to me that they have been trying to debase the USD in a race to the bottom (currency wars) in order to prime economic growth on the backs of others. In doing so, they punish savers and reward debtors. Bernanke: Go back to school and study the law of unintended consequences, you charlatan.
  3. QE 3, and all other quasi-printing may push up the price of gold - but not it's value. Ultimately, it will buy the same quantity of things as before. It is a fools' game to think that owning gold will generate wealth. It will only protect purchasing power over the long run. A crisis may push the value up along with the price - but in a crisis, who will sell gold to hold fiat? No one. That's why the increase in value is tentative and temporary: because it would mean a shift from gold to some other asset during a crisis.
Bobbyrib's picture

While I did give you a green arrow, I don't agree with all of part 3. People holding gold will trade it for food, water, and shelter when they need it. Why would you perpetually hold an item, because it has value? Eventually gold bugs will spend their gold, but the key is to wait for as long as possible to spend your gold (unless it becomes a bubble).

gmak's picture

The implication of point 3 is what you are saying "..the key is to wait for as long as possibl to spend your gold...". The underlying assumption in that statement, from your point of view, appears to be that the purchasing power of gold will continue to go up. I am suggesting that it is a rainbow, that when gold is at its maximum purchasing power, fear will also be at its maximum and people will continue to hold the gold. Only when fear abates, and the purchasing power of gold declines, will they feel comfortable "selling" iit. 

I do not believe the people holding gold will be able to trade it for food, water and shelter. As many have said: "If conditions reach such that there is only gold for exchange, then you will probably need lead instead". At the present time, gold is not generally considered money. It requires an exchange for paper money which can then be re-exchanged for goods, services, or assets. For gold to become money, it would require the breakdown of the GLOBAL currency system in place, with no substitute. My opinion is that, in that case, lawlessness would rule, and lead would triumph over gold for securing food, water, and shelter.

Cheers.

GetZeeGold's picture

 

Yeah.....got the food and water before I got the gold.

It's called planning.

 

Gold...you can't eat it...good...I wasn't planning on it.

 

 

Smiddywesson's picture

QE 3, and all other quasi-printing may push up the price of gold - but not it's value. Ultimately, it will buy the same quantity of things as before. It is a fools' game to think that owning gold will generate wealth. It will only protect purchasing power over the long run.

Academic nonsense.  Yes, over the long run, gold fluctuates in value less than any other thing because it is our measuring stick for value, but it's all still supply and demand.  The availability of gold, the number of people on the Earth who want it, the fear factor, and the availability of goods, fluctuates with time so how could gold maintain a specific value over time?  I will concede that when we widen out our frame of referrence to centuries things average out, and your statement that gold appears to not change in referrence to what it can buy becomes generally true, but it is still a generalization.   More importantly, it is irrelevant.  I don't care about the cost of eggs during biblical times.  When we shorten the frame of referrence to time periods that are relevant to human beings, such as years, or even decades, gold fluctuates in value a great deal, and all of that fluctuation is not due to currency debasement.  The argument that gold doesn't fluctuate in value, that everything else fluctuates in value is a poor argument against gold speculation because gold is measured in what it can buy.  Except to an academic, it's irrelevant which side of the trade is moving in value and which is stationary, you win or lose value based upon which side of the trade you are positioned.       

So in the classroom, yes, gold maintains it value and is unsuitable to generate wealth, but in the real world, it's all about timing, just like everything else.  A blanket statement that gold doesn't generate wealth is irrelevant.  Without something else, like proper timing, gold doesn't generate wealth, but we could say that about everything, right?  Taleb warns about this when he discusses taking an academic argument  into the real world of Extremistan. 

GCT's picture

Roflmao go ask a person what QE is and they will look at you and shrug.  My take is they are planning to scare the hell out of the sheeple and come riding in on their horse with more QE to save them and the sheeple will bow and praise them.  All apart of the psy-ops from the bankers and MSM.  They are just waiting for everyone to get their quarterly 401k print out with all those losses.

anynonmous's picture

ON bloomberg radio - El Erian as bullish (realitve to his nomral caution) as I have ever heard him

 

(and appears to be openly shilling for Obama with statements like "the polliticians are starting to get it" ; Obama in his speech made a good start in setting a vision for America" )

 

Watch for El Erian to land in Washington

 

(now that the Bloomberg paywall has been removed this interview will be posted later today)

Mr_Wonderful's picture

The market is being primed for a big October sell-off, there´s no doubt about it.

Maybe it´ll be Friday the 7th (flashback to 10/7/2008?) but that would probably be too obvious. In any case something very big is very likely to happen in the first two weeks of October prompting a market crash. Could be a major terrorist attack in the U.S. or Europe. We shall see.

Abitdodgie's picture

My guess is October 16th or November 9th

GeneMarchbanks's picture

This is gettin' kinky...

GetZeeGold's picture

 

Kinky is good..........

 

I am a Man I am Forty's picture

the fed is worried they are going to get stuck with the bill

GetZeeGold's picture

 

Dude......it's a blank check.......fully signed.

How many zeros do you want appended?

 

SheepDog-One's picture

Its not 2009 anymore, as Ive been saying for months on here against headwinds I do not believe QE3 is coming at all, there will be no sizeable market drop to 'panic everyone' because theyve 'cried wolf' already too many times and people are immune to it all since markets have been rescued WITHOUT QE3 so many times. 

We've soon the DOW drop -400, only to be recovered within 2 trading sessions. No QE3 ever, sorry.

doomz78's picture

must be annoying to central bankers how gold and silver are just not dying.  Gold 1670 as i write this.. silver is above 33 again.  I say bring QE3 on.  let's shower each other with cheap money.  0% interest rates...weeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee.  To all my banker friends and the Dow Jones I shower you with  red Monopoly bucks................ And I wonder where this super european protective tarp will come from?  oh Ben?? Ben.  Where are you our saviour?  Ben?  I can't see you.