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.