QEX

We have a new said program.  Not only did we know it was coming we knew it was never ending.  I had long dubbed this one "QEX" because it is the tenth round of easing since the Fall of '08 but little did I know the X would stand for infinity.

I read the white paper that details the program from the NYFRB and I found it to be vague.  I did take some tid bits from it however.

The majority of the buying will be on the eighth business day of the month, but MBS buying will continue until the end of the month.  The $40B monthly program is also only targetting that stated amount.  They will buy more all the way until the end of the month if needed.

The unsaid part is even more scary.  Since the Fed is like any other bank they will be able to fractionally reserve their assets and rehypothicate them at will.  This means the new program will total over half a trillion dollars per month of unsterilized dollars.  Combine this with the OT2 program which is sterilized and we get another half trillion dollar program.  This means that the Fed balance sheet will expand to at least $1T per month.  Yes, that's right - per month.

By my best guess the new program will begin on October 10th.  I expect it to blow asset prices out of the water from the get go, so the window to buy precious metals and get your house in order is closing.

I will also add my bugout bags were completed a couple weeks ago when I bought a ceramic water filter hand pump.  I have food, PM, friends and family and a way to get water.  I think that this financial and economic system will last only months from here.  Please make sure you have everything you need now.

I will point out that after the dust settles the world will be better off without the current financial system.  It will be harder for Americans, because oil will not be as easily procured due to the loss of a world reserve currency, but I think it will make us appreciate life that much more.  People will have to make their own clothes, garden, etc, but I think that work is good and it will bring us closer to the earth.  I think that we will keep the power plants on, even if they run at a lower capacity.  I do not see us going head first into a Mad Max scenario.  But I do think there could be weeks if not months of confusion which is why it is important to have that amount of food and water and barter and money.

QE Whatever

Are the markets expecting another round of quantitative easing?  Or are they just experiencing the massive devaluation of the fiat currencies of the world?  Either way prices have risen dramatically in the last couple months.  Oil is up and precious metals have made a move we have been expecting for a couple months. 

Tomorrow Bernanke will open his mouth.  No one knows what he will say.  He has been leaning towards announcing further easing of monetary policy but who knows if tomorrow will be the day it is announced.  We should note that policy is currently easy as POMO operations and Operation Twist 2 continue.  This is keeping their low interest policy in line.  This is important so the UST can continue to pay the interest on the debt.  When rates rise then the UST is bankrupt and the Fiat Ponzi, on the back of the dollar, ends.

I wrote awhile ago that precious metals would begin to move up in July.  They did.  Now they are back in the middle of the long term range.  This is a great time for them to consolidate.  1740 has held for a few days now and is poised for another move higher.  I think we will see $1900 in the next month.  Silver is also in the middle of its range and I think we will see $40 by the end of the month.

The future will see both metals double after that.  The whole financial and economic structure is completely unstable.  Fiat currencie has over saturated finance.  The bond market is subject to collapse due to artificial demand from the Fed.  These two sectors are killing each other:  the Fed prints dollars to buy bonds but the bonds lose value due to the ever inflating dollar.  This is creating a dissenence not ever seen before in finance.

Whatever happens tomorrow will not matter in the long run.  In the end gold and silver is money and the Fiat Ponzi will fail.

Bank Policy Tools

Anyone surprised when the Fed does not announce "QE3" and stocks don't sell off is a fool.  This is, and has always been, a centrally planned market.  The Fall of '08 was planned, as the PWG likely shorted stocks on their way down.  The rise of prices was planned, as is dictate by Neo-Keynesian economics (to lower the value of currencie to "support" prices) to get out of a recession/depression.  And now there is no going back.  If stocks fall, if there is another crash in equity, then it will be shown that the Fed failed, that the governments of the world failed.  Maybe this is what the policy makers want.  Maybe they want their New World to feature no governments and no Central Banks, but I think we are still a couple years out from that if that is the end.

Until then the policy makers can do whatever they want to meet demands.  The Fed is still printing money.  They never have stopped since their inception.  The UST issues debt and the Fed prints dollars.  They can continue to purchase bonds without QE.  They can loan dollars by fractionally reserving them and they do not need to tell anyone.  These policy tools will keep the status quo in line for awhile.

The only thing the Fed can not do is print gold, and because they use it as a reserve on their balance sheet (they base loans off of gold) that means that they will use it to balance out their liabilities.  This means gold will have to go up.

So now we see the dollar's value must go down (to increase exports and "support" asset prices) and to do so gold will rise.  The Fed does not need to issue another QE for now as they continue POMO and OT2.  They will also loan gold out which at first will quell demand and add supply, but in the long run they will be loaning gold out at 100 to 1 and when they reign in the loans gold will spike huge.  These policy tools will only last so long, but they will mitigate the economic problems the Fed sees for a few more months.