Monday, June 20, 2011

Without Quantitative Easing

If monetary policy changes, and Fed monetary policy goes without a form of easing, if it be a TARP bailout, a STIMULUS bailout, a Jobs Program, or downright Quantitative Easing, then rates will rise.  Then there will be a margin crunch, as the debt is sold for less and the Fed's cashflow is shrunk.  Investors will not want to buy debt while the rates rise, and a waiting game will begin that will never end.  Bernanke would have to raise the rates 10% at once to end the game.

Then the Fed would have to collateralize all of their reserves, be them gold or what not.  Gold will be lent to back the debt, as the Social Security Trust Fund is insolvent (it ran $1 trillion in the red last year), and the only collateral left is the toxic debt on the Fed's book.

This will trigger a butterfly in corporate bond prices, as corporate debt will be seen as the safe play.  This because it was the corporations that received the bulk of the bailouts through TARP, STIMULUS, and even QE (as it has been the Major Banks flipping the US debt back to the Fed).  The plan all along, since the Fed's inception, was to establish the corporations as the ruler over the economic landscape.  Corporate equity would meet gold 1:1.  If that means the Dow pulls back to 5k, and meets gold there, or if the Dow holds steady at 12k, and gold meets it at $12k, then that is possible too.   Based on the size of the US debt, and global debt, gold will be sought at loan at a fair price of $9k-$13k.

This will be the finishing move.  The reason I think that QE in some form will continue, is because I think there is still some ground to gain, and I think that the corporatocracy has a little more blood to let from the almost dead middle class.  I think that the Republicans caving on the debt ceiling was a sign of this.  I think they will monetize the debt for awhile longer, until gold, silver, and platinum are too expensive for the average consumer, until oil is breaking the backs of not only the poor but middle class, until people are forced to give up their sovereign rights to Rockefeller and Morgan's dreams.

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