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A Global Tsunami, Courtesy of the Fed

Monday, April 4, 2011, 10:04 AM

The Fed is in a bind. No matter which way it turns, utter failure is a risk. Putting more money into the system risks no less than the dollar itself. Stopping quantitative easing (QE) risks plunging the economy and financial system into another period of turbulent decline. It looks like the Fed is going to choose the latter.

In a recent report, I made the case that pressure was building on the Fed to end its QE 2 program in June, and that if it did, there would be an enormous rout in the stock, bond, and commodity markets. That analysis still stands.

This new two-part report will analyze the many competing factors, both for and against, that will determine whether QE 2 really is the end of the Fed's efforts at printing up a recovery, or merely the event that precedes QE 3. The factors are numerous and polarized. On the one hand, there are many signs of economic recovery - the very best that a few trillion can buy - and on the other hand, there's $108/barrel oil and a deeply uncertain future for Japan over the next 3-12 months.

Fed Adopting Tougher Posture

Recently the Fed has trotted out several of its governors to make the case that they are serious about ending QE2. Strangely, they chose Friday and Saturday to go on a publicity tour -- days of the week normally reserved for news that is being buried, not exposed.

I found the following news snippets odd, not just because of their Friday/Saturday timing, but because they are all versions of the story purporting that the Fed is "thinking about tightening."

Fed’s Fisher Says He Backs Ending Central Bank’s Jobs Mandate

March 25, 2011, 2:45 PM EDT By Vivien Lou Chen and Jennifer Ryan March 25 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard W. Fisher said he supports the idea of dropping the central bank’s congressional mandate for achieving full employment.

Fed's Plosser: Funds rate should hit 2.5% in year

March 25, 2011, 12:38 p.m. EDT By Greg Robb WASHINGTON (MarketWatch) - The Federal Reserve should hike interest rates from current range near zero to 2.5% within a year under a plan unveiled Friday by Charles Plosser, the president of the Philadelphia Federal Reserve Bank. Plosser did not give a specific time when this exit would begin but said it would have to start in the "not-too-distant future." In a speech to economists from the monetarist school on Friday, Plosser laid out an aggressive plan where the Fed would sell $125 billion of assets for each 25 basis point increase in the funds rate.

Fed Policy Makers Should Review QE2 Strategy, Bullard Says

March 26, 2011, 9:00 AM EDT By Scott Hamilton March 26 (Bloomberg) -- U.S. Federal Reserve policy makers should review whether to complete a second round of quantitative-easing purchasing due to end in June because of strong U.S. economic data, Federal Reserve Bank of St. Louis President James Bullard said.

All of these are part of a carefully choreographed PR campaign by the Fed to signal to the market that it is serious about ending QE efforts.

A week later, in another Saturday release (April 2, 2011), Bill Dudley offered up perhaps the clearest view of what the Fed is thinking:

Faster-than-expected payroll growth last month shouldn’t alter the U.S. central bank’s plans to buy $600 billion in Treasuries through June to prop up the recovery, said William C. Dudley, president of the Federal Reserve Bank of New York.

“I don’t see any reason to pull back from that yet,” Dudley said to reporters after a speech yesterday in San Juan, Puerto Rico. Market expectations are for the Fed to complete its planned bond purchases in June and not to announce additional buying, he said. “I don’t view those expectations as unreasonable in any significant way.”

(Source)

So the messages given a week earlier were digested by the markets, and the Fed decided to sharpen things up a bit by saying that the $600 billion program would be completed, but that's it. It seems clear that they want us to prepare ourselves for a sudden termination of QE at the end of June.

To further drive the point home, the Fed recently conducted a couple of "reverse QE" transactions, a.k.a. 'tri-party reverse repos,' which are nothing more than the Fed doing the exact opposite of QE -- putting Treasury bonds out and taking cash back in.

The scope of these operations was quite small, $1.75 billion in one instance and $0.75 billion in the other. But their true importance lies in their signal to the market that the Fed may someday not only stop the QE program, but reverse it.

Altogether, the Fed is sending out very strong signals that it intends to at least halt QE2 on schedule and not immediately move to QE3. There will be a pause.

What happens if the Fed abandons QE?

The reason we should all be quite concerned about the Fed ending its QE efforts is that the asset markets will take quite a dive if it does, but each for their own reasons.

Let's be clear about what the Fed has been doing with its QE programs: It has been printing up high-powered money out of thin air and exchanging it for Treasury notes (and bills and bonds). This shows up beautifully in the monetary base charts dutifully kept over at the St. Louis Fed:

(Source

The monetary base has gone up by some 300% since the start of the crisis. This is the money that has been sneaking out into the commodity, stock, and bond markets.

We can appreciate the scale of this in the amounts that are now being funneled into the capital markets on a near-daily basis:

(Source

What we need to consider is what will happen when an average of $4.4 billion dollars per business day are no longer flooding into the markets. Will asset prices be at risk of falling without these massive daily infusions of liquidity? You bet.

And add to this an unexpected threat that's just entered the picture: Japan.

A Disturbance in the Force

The biggest risk here, aside from parts shortages and supply chain difficulties, is what happens when the flood of liquidity that has emanated from Japan over the past two decades reverses course and flows in the other direction. This is a major transition (which I expounded upon more deeply in a recent post for my enrolled members) for which both Japan and the world economy at large are wholly unprepared.

If we add the idea of the Fed's termination of QE, which has been enormously supportive of Treasury prices (and therefore low interest rates) to the idea of Japan suddenly becoming a net importer of funds instead of an exporter, we can quickly arrive at the risk of a rather unpleasant period for US Treasuries -- and, by extension, many other government bonds.

Already the governments of Portugal, Greece, and Ireland are paying rates on their sovereign bonds that are way above their nominal rates of GDP growth, which is a certain recipe for financial disaster. It's as if to survive, you need to borrow by using your credit card, even though your rate of interest on the card is several times larger than your yearly salary increases. Eventually that ends badly, and everyone knows it.

Along with this, we have to consider the idea that rapidly rising interest rates in the US Treasury market are destabilizing in other ways, but especially to the $600 trillion dollar derivative market, a significant portion of which is tied to US Treasury interest rates. Who knows what sorts of accidents await in a market that is too complicated to grasp in its entirety?

Of course, the US housing market, still struggling from poor sales, a massive shadow inventory, falling prices, and far too much negative equity, will perform especially poorly if interest rates rise.

If the Fed terminates QE on schedule, then I think a tsunami metaphor is apt. First, all of the liquidity will drain out of the bay, leaving countries, governments, and institutions to flop about in the mud. Then the Fed will panic and resume the liquidity flood, feeding the wave that will rush back in to destroy the lives and portfolios of those who positioned their wealth in harm's way.

The biggest problem with the current situation is that there's practically nowhere to hide. To an unprecedented degree, all of the world's markets and all assets classes are now trading in synchrony. If all of the assets in all the world's markets are moving up and down together, where does one go to sidestep the policy foibles of the Fed?

In Part II of this report, Finding Shelter From the Storm, we delve into specific strategies to consider for preserving wealth during these very turbulent times - as well as offer trading guidance for those willing to put risk capital into play. We explore what is likely to happen to the major asset classes (stocks, bonds, precious metals, housing, commodities) as the Fed attempts to tighten, and what is then likely to transpire if it later throws in the towel and begins printing again.

There are treacherous waters ahead. Liquidity will leave of the system and then come crashing back in. The unwary will lose nearly everything in the process, and so will some of the wary. Beating this current period of financial disruption by preserving your wealth will not be an easy task. Those looking to do so should consider reading Part II of this report  (free executive summary; paid enrollment required to access). 

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28 Comments

kito's picture
kito
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Posts: 7
end of qe2

i think we are treating the end of qe2 like y2k. in the land of the blind, the u.s. treasury market is the one eyed king. it reigns supreme due to liquidity. central banks, especially those of emerging economies, have no other viable place to park their vast reserves. china has openly lamented this fact. additionally, the world central bank cartel knows full well what happens to their holdings and their economies should the purchasing of treasuries come to a halt. just as the cartel came to japan's aid, they would act similarly to avoid mutally assured destruction via treasury purchases.

make no mistake about it--bernanke is shrewd --he would never allow the end of qe2 and NOT have buyers lined up to replace the fed purchases.

markets are forward looking (at least they think they are)--if there was anticipated mass asset destruction on the near horizon, it would have been built in already. so far, no bond vigilantes in sight, and the stock/commodites indices continue to climb.

remember, obama is heading into re-election. as in all the previous third year presidential terms, rest assured the govt will keep the investing masses happy for now.

OctoberLandon's picture
OctoberLandon
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Conspiracy Theory??

Hi Gang,

I don't mean to sound critical, but don't we sound a little paranoid when we say things like, "All of these are part of a carefully choreographed PR campaign by the Fed to signal to the market that it is serious about ending QE efforts." How do we know that the Govenors of the Fed are not speaking indepentently?  Why do we have to sound like there is a conspiracy, or some well orchestrated plan? Why can't it just be the individual govenors speaking their mind?

Just a thought!

OctoberLaughing

Phil Williams's picture
Phil Williams
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Posts: 337
Part 2

For those that are not paid members, part 2 is worth the price of admission. Thanks, Chris, for the spot on analysis as usual.

OctoberLandon's picture
OctoberLandon
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Posts: 23
I still have goose bumps!

Yes, you are sooooo right zeroenergy21

I read Part II and I still have chills!  But it made a lot of sense!  Thank you Chris!!!Laughing 

grl's picture
grl
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Posts: 188
kito wrote: <snip> make no
kito wrote:

<snip>

make no mistake about it--bernanke is shrewd --he would never allow the end of qe2 and NOT have buyers lined up to replace the fed purchases.

markets are forward looking (at least they think they are)--if there was anticipated mass asset destruction on the near horizon, it would have been built in already. so far, no bond vigilantes in sight, and the stock/commodites indices continue to climb.

remember, obama is heading into re-election. as in all the previous third year presidential terms, rest assured the govt will keep the investing masses happy for now.

Kito's observation makes sense to me. I can't imagine that the Fed is not aware of the picture painted here and either knows more and better or has a method for avoiding the "tsunami." Otherwise, such an outcome would reveal to all that the emperor has no clothes. I have learned to never underestimate the power of the central planners; I just can't imagine they would choose such a course without a plan to avoid a rout. For going on three years now, I have said that time will reveal the true state of things. I have been continuously amazed anew as the central planners keep this [sinking] ship sailing.

nickbert's picture
nickbert
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promises you know you won't have to keep

Seems to me that the Fed is adopting a tougher posture because they know at some point really soon they'll have a number of government and business interests screaming at them to please Please PLEASE SAVE US!!!  The already unstable financial environment combined with the impacts from Japan give them a guaranteed immediate crisis, and the expected crisis response has the Fed's name written all over it.  It's easy to make promises you know you don't have to keep, and if doing so earns them some near-term brownie points so much the better.

The more I think about it the more probable this short hiatus in QE that Chris has been talking about will happen.  From the Fed's perspective it may be seen as a necessary risk, in a sense taking one step back so they can go two steps forward.  It may end up being a real short-lived and rather violent hiatus, though.

- Nickbert

SailAway's picture
SailAway
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Posts: 404
end of qe2
kito wrote:

markets are forward looking (at least they think they are)--if there was anticipated mass asset destruction on the near horizon, it would have been built in already. so far, no bond vigilantes in sight, and the stock/commodities indices continue to climb.

But maybe the reason why the markets don't seem forward looking is just because the market is mainly the FED at the moment. Regardless of Japan, Middle East, North Africa, food inflation, exponential public deficit, real estate etc... markets continue to rise. So if the FED continues to pump money into the system until June isn't conceivable that markets will keep rising until then?

 

DrtFrmr's picture
DrtFrmr
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Jim Rickards stocks & flows

Chris et al,

Please comment on Jim Rickards' idea that the Fed will be re-investing the payback on the treasury debt and so, in essence, continuing the quantitative easing to the tune of $700 billion per year. 

thanks,

Jackson

earthwise's picture
earthwise
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Jim Rickards: No QE2
DrtFrmr wrote:

Chris et al,

Please comment on Jim Rickards' idea that the Fed will be re-investing the payback on the treasury debt and so, in essence, continuing the quantitative easing to the tune of $700 billion per year. 

thanks,

Jackson

Jackson,

There is a thread (actually two) on this topic. Thinkor, a member here at CM.com gives a great critique of Mr. Rickards thesis. I have great admiration for Mr. Rickards work, but he is off target on this one, and his attempt to revise and extend is also.  IMHO.

Here are the links:

http://www.peakprosperity.com/forum/rickards-wrong-there-no-perpetual-qe/54566

http://www.peakprosperity.com/forum/rickards-revisits-perpetual-qe/55622

cathyokeefe's picture
cathyokeefe
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I heard today that the IMF

I heard today that the IMF is also saying that the US needs to raise taxes across the board by 35% and reduce spending across the board (on health care and social security) by 35%.

I read this at Zero Hedge and he had the "white paper" with the information. 

Personally, I cannot take anymore "hits". I'm sure many people can't. Also, we already have over 50 million people without health care. Does this bother anyone?  I recently tried to get some medical care at a community health clinic. I have no insurance or government medicaid. They told me they would could not help me because I was offering to pay cash. I couldn't go anywhere else because private doctors were charging too much. My example is just a weeeee little one and luckily not real serious....But what about people with more serious problems? They end up at an emergency room, then unable to pay.

This is really getting crazy. The easiest way to solve our financial problems would be to stop the wars that have cost over 3 trillion dollars these last ten years, invest in new technologies (which there should be plenty) and make use of all the empty factories that are just sitting around rotting, invest in educating people....Really educating them, not just raiding their wallets.

They have missing trillions that Rumsfeld mentioned the day before 9/11. What happened to that? All the records were destroyed in the Pentagon that day. WHO is taking all this money? They have completely looted the nation!!

The time for being nice and polite has passed.

Looking at these mortgages that are drowning many people, make the banks lower their payments so they can stay. Its more costly to our society to let millions lose homes, have abandoned real estate, etc.

The Banks have done nothing towards "service" towards the people, which is after all their supposed role.

 

cathyokeefe's picture
cathyokeefe
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Could all this be a plot to

Could all this be a plot to do away with the Federal Reserve and replace it with an international version? IMF?  I sure notice an increase in British influence in the U.S. these days.

Apparently, the Fed was giving loans to many foreign banks. Ron Paul is seeking an investigation of this. In the "old" days, anyone that critisized or exposed the Fed usually lost their career. Ron Paul goes to town on these people all the time.

I may be accused of being a conspiracy theorist. But some of these conspiracies actually end up panning out to be correct.

earthwise's picture
earthwise
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Timing the Tsunami

 

If memory serves, QE2 was announced last spring and implemented last fall. It took several months for the full wrath of it's inflationary impact to be felt with the most obvious signals being the price spike in commodities which fueled the unrest in the MENA region.

With QE2 being threatened to be ended in June, are there any hypotheses on how long before the tide goes out, how long before the Fed relinquishes and resumes QE, and when the tsunami will surge onshore, swamping all in it's path. I realize theorizing the timing is a fool's errand, but what the heck...........any suckers, er.. ummm, I mean, takers?

Okay, then I'll go.

I say the economy can "hold it's breath" for six months max before the Fed is forced into more monetization. Maybe another six months of said monetization before the tsunami flows onshore. Grab your life jackets!

hucklejohn's picture
hucklejohn
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Very well thought out

Very well thought out commentary but I disagree with Chris.  Most remarks from the Federal Reserve constitute  propaganda & misdirection.  The Federal Reserve is stuck.  QE 3 and more is a done deal.  It is going global.  Remember the Federal Reserve is owned, lock, stock & barrel by the banking cartel.  The banking cartel and their allies know that we are getting close to the final melt up (or down) of the system.  Over the next year or two will be their last chance to suck away America's wealth and transition America into Third World status.  Could there be a brief (one to three month) pause?  Yes, but this would simply be more misdirection.  And no way does the Fed wish to be perceived as driving America into a depression 12-15 months before a presidential election.    

I am persuaded by Jim Willie's reasoning:

The recession will be deeper from the supply chain disruption and higher cost structure. The monetary inflation will be more uniform and with greater volume. The major currencies within the global monetary system will suffer much more debasement, as value erodes badly. At the same time, the boogeyman image of the US Federal Reserve will be mitigated by the full chorus of central bankers eagerly coming to the Yen currency rescue. Witness Global Quantitative Easing with extreme force, the printing presses in high gear straining to produce enough funny money to build seawalls strong enough to withstand the destructive tsunami. Wreckage from previous overwhelmed platforms has begun after three decades of funny money abuse, whose waves of busted bubbles and failed assets have been doling out powerful blows for over three years. Witness the Global QE, as all major nations will help the USFed to print money, wreck currencies, destroy capital, ruin businesses, and cause an easily recognized price inflation. Of course, they will continue to aid the elite bankers who are mostly responsible for ruin. Notice how the USDollar continued to decline, going below the 76 support level for the DX index. Despite the weak futile pathetic rebound, the DX index remains the former support under 76. Three imagines come to mind on the destructive forces: a gattling gun, a daisy chain centrifuge, and overhead office building spray.

http://news.goldseek.com/GoldenJackass/1300910400.php

 

greenbeard's picture
greenbeard
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You are missing something.

What you are failing to see is the pretty much guaranteed "Black Swan event". Of course the Fed can't stop and they will not. There will be a shocking event that will bring them to the rescue and dupe the masses into thinking it was an outside event that caused the hardache. Do any of you remember the accelerating market collapse going into late summer of 2001? Most people have forgotten because 9/11 distracted everyone. One disaster was replaced with another. It will happen again... Do not be shocked by ANYTHING.

jturbo68's picture
jturbo68
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Black Swan Event

 

Perhaps the black swan event to continue QE2 has already taken place .... Japan

As that continues to drag out.

hucklejohn's picture
hucklejohn
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Good point, greenbeard.

Good point, greenbeard.

Grover's picture
Grover
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QE II Will End
nickbert wrote:

Seems to me that the Fed is adopting a tougher posture because they know at some point really soon they'll have a number of government and business interests screaming at them to please Please PLEASE SAVE US!!!  The already unstable financial environment combined with the impacts from Japan give them a guaranteed immediate crisis, and the expected crisis response has the Fed's name written all over it.  It's easy to make promises you know you don't have to keep, and if doing so earns them some near-term brownie points so much the better.

The more I think about it the more probable this short hiatus in QE that Chris has been talking about will happen.  From the Fed's perspective it may be seen as a necessary risk, in a sense taking one step back so they can go two steps forward.  It may end up being a real short-lived and rather violent hiatus, though.

- Nickbert

Nickbert,

I agree completely! The Fed is going to hold congress hostage. They'll be true to their word, stop QE2 in June, and wait for the carnage to hit the market. Currently, they keep the market propped, so in essence, they are the market.

I expect turmoil to rule the markets for the short term. Then congress will hear from their constituents that something (read, anything) needs to be done to stabilize the markets. The Fed will comply, but they want a "get out of jail free" card in exchange. In our current environment, that translates into a no-audit, no-interference clause. Congress will be painted into a corner and will overwhelmingly approve this measure. There will be dissenters such as Ron Paul, but he will be eviscerated by the move. The end result is that the Fed will have had solidified their power and eliminated ALL opposition.

Volatility will extend across all asset classes. I remember trying to buy silver when the price first crossed $20 and then sunk to under $10 per ounce. Buying premiums kept the price above the $15 range as the spot price declined. The few desperate sellers were quoted near spot price, but buyers needed to pony up a 50%+ surcharge. With prices now near $40, I expect buyers to get a bargain at $30, regardless of the actual "spot" price.

Grover

 

cathyokeefe's picture
cathyokeefe
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This is at zero hedge. Its

This is at zero hedge. Its from a few months ago but it sounds reasonable and relevant:

Nightmare Scenario: The Fed Outlives the US Federal Government

 

Arthur Robey's picture
Arthur Robey
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Posts: 3936
  Kathy o'Keefe said I may

 

Kathy o'Keefe said

I may be accused of being a conspiracy theorist.

Well Kathy, I am at war with pathological skeptisism.

Imagine this. 

I am on patrol in a war zone. The peace is shattered by loud noises. The man's head in front of me  explodes . I survive.

Pathological skeptic: How do you know it was an ambush? You are implying a conspiracy to kill you.

Me: erm.  .  . yes.

Pathological skeptic: Do you have the names and addresses of the so called "conspiritors".

Me: erm.   .   . I guess not.

Pathological skeptic. Another triumph for skepticism. 

Another triumph for BS. It happens all the time. The Devil is a master of deceit.

cmartenson's picture
cmartenson
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OctoberLandon wrote: Hi
OctoberLandon wrote:

Hi Gang,

I don't mean to sound critical, but don't we sound a little paranoid when we say things like, "All of these are part of a carefully choreographed PR campaign by the Fed to signal to the market that it is serious about ending QE efforts." How do we know that the Govenors of the Fed are not speaking indepentently?  Why do we have to sound like there is a conspiracy, or some well orchestrated plan? Why can't it just be the individual govenors speaking their mind?

Just a thought!

OctoberLaughing

Not paranoid, just repeating the words of a former Fed staffer who recently noted that recent FOMC policy meetings consisted of 1/3 time spent on data and policy and 2/3 on wordsmithing and coordinating the messaging efforts.

No surprise there, as that is a legacy function (feature?) of the Greenspan era.

Thomas Hedin's picture
Thomas Hedin
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Addressing the facts...

Putting more money into the system risks no less than the dollar itself.

Mr. Martenson,

Could you expand the fact that all this money is only being put into circulation as interest bearing debt and it's the fact we all have to collectively borrow from the banking system before we can spend that hurts?

 

SailAway's picture
SailAway
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Joined: Aug 11 2010
Posts: 404
Will The Repo-Reserve Carry Trade Blow Up Force Bernanke To Pull

 

I have to say that this is flying 10,000 feet above my understanding level, but it just look to me like another one of this very dangerous gambling that is taking place in the financial system. Could anybody explain this ?

http://www.zerohedge.com/article/will-repo-reserve-carry-trade-blow-force-bernanke-pull-liquidity-and-kill-stock-market-rally

Quote:

By now everybody knows that only a last ditch intervention by the G7 prevented the financial system from imploding three weeks ago, when the Yen carry trades blew up in the face of all those who had been short yen, long high yielding currencies. The result would have been a pervasive trading desk annihilation, possibly on par with that experienced after the Lehman collapse had the world's central banks not stepped in to sell Yen in droves. Yet what fewer know is that when it comes to funding cheap carry-type trades, the FX carry trade is merely one. A possibly far bigger one has been the one established courtesy of the Fed's generous Interest on Overnight Reserves (IOER) rate which being far higher than General Collateral (GC) Repo, presents banks with Fed deposit access, what was a sure way to earn guaranteed money on an interest rate arbitrage spread. For nearly two years banks collected the proverbial pennies in front of the rollercoaster... until last Friday, when the FDIC decided to spoil the party. What happened as a result of the FDIC's decision to establish an assessment rate which spoiled the arb, was a blow out for most institutions playing the IOER-GC carry trade leading to a major disruption in this funding market, possibly far more serious than the FX carry trade unwind, and a plunge in overnight GC repo rates on Monday (see chart) by over 75%! Does this mean banks have lost one key carry funding source? So it would appear. And it only means that the FX carry trade will be that much more a critical source of "risk-free" income for banks... At least until the next major earthquake above the ring of fire. In the meantime, as the Fed scrambles to restore normality to the repo market, will the Fed be forced to do Reverse Repos, which while fixing the carry trade, will withdraw far more liquidity form the market. Which as we all know is grounds for immediate incarceration in a Centrally Planned kleptocracy such as the USSA.

 

Broadspectrum's picture
Broadspectrum
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Financial Totalitarianism

Hi Thomas and All,

This article fits into the discussion.  I found it over on Carolyn Baker's web site,  http://carolynbaker.net/  where she has posted CM's "...Mortal Wound..." video.  Scroll down to see the article on financial totalitarianism

I say End the Fed.  Spend money into existence at 0% interest.

Broadspectrum

“How do I invest my money for it to survive financial, political and commercial collapse?” The short answer is: “Nohow. Money will not survive collapse; not yours, not anyone else’s.” But that answer is not acceptable, because accepting it would require a profound loss of faith—faith in money...  http://carolynbaker.net/2011/04/04/financial-totalitarianism-by-dmitry-o...

 

A1B2C3D4's picture
A1B2C3D4
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Posts: 24
Factors in Future Price of Silver

Certainly the whirling printing presses of the Federal Reserve here and those of other countries which are trying to keep up, that is, destroying their own currencies in order to prop up their export trade, is responsible at least in large part, for the rise in value of gold and silver. Gold and silver are real money which retain their purchasing power against an inflated paper currency whether that currency is redeemable or not.

There is an oft quoted story that in 1910 one could purchase a three piece suit for twenty dollars. A twenty in those days would be a gold certificate, that is one could redeem to paper for a twenty dollar gold piece, such as a St. Gaudens Double Eagle, thought to be by many the most beautiful coin in the world.

The creation of the Federal Reserve System in 1913 was the result of a stealthy move by the banking cartel.  You must read G. Edward Griffin's The Creature From Jekyll Island for a detailed presentation of this act of power lust, as J.P. Morgan arranged for a secret meeting at his hunting lodge off the coast of Georgia in 1910, not to hunt ducks rather to write what became the Federal Reserve Act.

Since the Fed was created it expanded the currency reducing the purchasing power of the dollar by over 95%. Nowadays a three piece suit could easily cost as much as $1500. Notice that is the value of a coin of the barbarous relic.

But in the case of silver its rise in value is not dependent entirely on the printing presses. We do not yet know the true free market value of silver because we have not had a free market in silver. Its value has been artificially held down for decades by manipulation in the form of sales of  "naked" short silver futures contracts. In this regard read Ted Butler's articles archived at Investment Rarities (www.investmentrarities.com). A link on the home page is entitled: The Biggest Factor in the Future Price of Silver.

Recent attempts to have the Commodity Futures Trading Commission under Gary Gensler set position limits have not yet materialized and J.P. Morgan continues to sell silver contracts representing a holding exceeding all the silver mined in a year.

Industrial demand for silver has been and will continue to grow and there is evidence of silver shortages which will cause the price to continue to rise toward its free market value. Not that an end to Fed's QE2  will not cause a ripple but there are other factors in the silver price in my opinion.

Here is a link to the latest commentary by the silver analyst Ted Butler:

http://goldsilver.com/news/silver-metal-investment-a-presidential-bombsh...

 

technet's picture
technet
Status: Member (Offline)
Joined: Mar 18 2011
Posts: 16
Another way to look at it

These booms and busts have been a particular part of the system for a long time, at least since nixon removed the gold standard.

These guys running the various central banks around the world are not so so stupid they don't understand how it all works. Even if clowns like Bernake and Trichet truely believe in what they are doing and saying....  they are just puppets, feeding on BS and there are CEOs and bankers behind the scenes pulling the strings.

For a period of time the central bankers play nice guy, keeping interest rates low, keeping money supply fluid and economy booming. Then they play bad guy, jam on the breaks, slow the money supply, and the economy takes a hit.

Of course its never as bad as it seems since people will always need food, fuel, homes, furnishings, technology etc. and life goes on.....  

But when they jam on the breaks, its shakes the passengers..... businesses fail, other businesses get bought out for pennies in the dollar. Jobs dry up, the labor market becomes tough... and what is the result ? ......  It keeps the general population guessing and struggling, it keeps medium businesses as prey for larger ones, and it keeps the banks and corporations in the driving seat.

If I have a bus full of passengers and I keep jamming on the breaks every time someone stands up to get me to stop or change or replace me as a driver, well guess what I get to remain the driver.

If you ask me its a pump and dump scheme, and even the level of Govt. debts around the world is exactly where these bankers and corporations want the level to be at, because a bankrupt Govt. struggling, especially into a sea of rising interest rates, that's a Govt. you can control.

Imagine if things had continued and countries like Portugal, New Zealand, Greece, Hungary etc. had their finances in order and no public debts... they would become independant from the system. They could pick and chose their own rules and be free. Not good if you are Exxon Mobile or Microsoft or etc. wanting to sell products and have a free run of the market.....

Its not a conspiracy theory as such, its simply the easiest explanation. The one that benefits the powerful few at the expense of everyone else.

The dollar is not going to collapse, they will run interest rates back up again, and screw everyone, gold bugs included. Look at what happened in the 70s, in the face of total debasement, and loss of gold standard, this huge commodities boom and economic turmoil ...... resulted ultimately in interest rates running to the moon and gold prices collapsing.

It worked so well they are doing it all over again.... and why not, its like a jackpot machine....

Its not so much about money or wealth, or rigging the markets, its about power.... the biggest drug...is power... not money....

 If you don't believe it, then just take a look at the latin american model of governace, because that's where the world is headed. A country that puports to be badly run and massively in debt. and have terrible government, but quietly supporting a small masively weathy elite class, that have servants and huge houses etc. etc....  Some lucky few entertainers, actors, business people, the chosen few to make it look like you can suceeed, and an enormous population living in abject squalor. America is already 75% of the way there, so is the UK and alright they are a little more socialist in EU, but with all the cut backs and debts, pretty soon it will be the same too....

Welcome to the reality people... which tin shack did you prefer... the one next to the drug dealers or the one next to the old lady dying of some horrible disease with no medical assistance ?

All the gold and silver in the world ain't going to help you when they jam up interest rates... Govt. debt be damned, no one cares about that.... that's just the honey trap the Govts. have all fallen in to, it will leave them at the mercy of the corporations.

It doesn't matter even if you have the most amazing zen monk, dali lama as president, with all the debts he will take on, you can control him better than any string puppet....

The one who pulls the plug on the debts and tries his hand at playing outside the system will be hung from the lampost outside the whitehouse by his own stupid citizens who will rebel when all their ideals of savings and pensions etc. dry up and disappear like they did in Argentina....

Until then expect more of the same and that means in time, interest rates going to the moon.

If gold takes over the paper money, no one wins, the bankers and corporations lose and we have a level playing field and a real economy... no one is going to let that happen, way too much power at stake. !

Even if they have to bankrupt the US Govt. and default on its debts and crash everything, release a new US dollar with interest rates at 20% ..... anything they will do to maintain power and avoid the gold standard.

Norbull's picture
Norbull
Status: Member (Offline)
Joined: Mar 18 2011
Posts: 1
QE2 self sustaining

Isn't there a theoretical possibility that the FED just has to keep using the capital repayments due from QE2 to keep QE3 going without actually printing any more money?

Subprime JD's picture
Subprime JD
Status: Platinum Member (Offline)
Joined: Feb 17 2009
Posts: 562
technet: Welcome to the

technet:

Welcome to the club.

So basically what you're saying is that the parasite wants to kill the host. The problem with the parasite is that its too greedy. Kid of like Aesop's fable of the turtle and the scorpion, how the turtle was going to swim to the dry land and the scorpion wanted a ride on its back. When the scorpion bit the turtle, the turtle asked "why did you bite me, dont you know its in your interest not to have me die as we now will both die?" To which the scorpion responded "its my nature."

In a way I agree with you're analysis. The ones in control of the situation are the uber wealthy, and since they are so greedy (Gerald Celente calls them money junkies) they care not that they will kill the host (95% of US households), all they care about is more power and wealth. Eventually however, without a vibrant middle class the corporations themselves go bust as no one can afford their products.

 

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