We Know More About the CIA Than the Federal Reserve

Judge Napolitano weighs in on the recent actions of the Federal Reserve, and asks why now is the opportune time to officially introduce the next round of quantitative easing:

The job of the CIA is to steal and keep secrets. We know far more about the CIA than we do about the Federal Reserve. Its members are appointed by the President and confirmed by the Senate, yet it's a private bank that makes its own money, regulates the economy, and can print money.

The Federal government doesn't print money.

The Federal Reserve prints money.

It's not federal. It's not a reserve. It's a private bank.

Why is it flooding the market with cash?

He's (Ben Bernanke) going to create out of thin air forty billion dollars in cash and put it in the accounts of the Federal government. That is more cash chasing, available for, the same amount of goods and service.

Answer: inflation.

What goes up first? The thing we use the most… Fuel, food….

In 2008, as Presidential election day was approaching, the rug was pulled out from under U.S. stock markets by restricting the flow of capital to banks and the broader economy. The crash and subsequent economic crisis was used as a means to torpedo John McCain's Presidential hopes and propel the policies of progessive socialists and Barack Obama into the spotlight.

It looks as if the Federal Reserve may very well be engaging in politics yet again, this time helping to maintain stock market levels. Barack Obama is in a close race with Mitt Romney, and a stock market crash would certainly put the final nail in the coffin of his campaign. The powers that be have decided that now is the time to pump more money into markets, which is strongly supportive of the current administration.

It's simple, really. If markets crash Obama is out and Romney is in.

Mitt Romney, for his part, has now come out against the Fed and called for transparency. He must know that they have conspired against him.

But is Mitt Romney really any different with respect to his position on the fractional reserve monetary system?

Today, this debasement that was at one time punishable by death is business as usual.

If you print money we call it counterfeiting and the punishments are severe.

When the Federal Reserve does the same thing we call it inflation and they are revered.

via SHTF Plan by Mac Slavo on 9/20/12

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QE3: Banks Already Drowning In Liquidity

It's become apparent that the "solution" to the growing complexity of the financial system is more complexity.  The Federal Reserve planning concept of fixing debt by adding more debt, especially as we just crossed $16 trillion in public debt last week. With a new QE round between $200 and $500 billion the world is drowning in liquidity.  In other words, not only is debt the fix to record debt, but liquidity is about to be unleashed on a world that is already drowning in liquidity. 

The bad news: everything being tried now will fail, as it did before, because nothing has changed, except for the scale, meaning the blow up will be all that more spectacular. The good news: at least the Keynesians (or is it simply Socialists now?) out there will not be able to say we should have just added one more [    ]illion in debt/liquidity and all would have worked, just as our textbooks predicted. Because by the time it's over, that too will have happened.

From JPM's Michael Cembalest:

"It has been a strange year. If you were concerned about the global economy this year, you were right:  

• Leading indicators of manufacturing, such as new orders, are weakening just about everywhere
• Chinese, Korean and Taiwanese exports are slowing sharply; China may be growing at only 6%
• European growth is ~0%, with the periphery in recession. Germany business surveys also fading
• Last week’s US jobs report was weak across the board (payrolls, work week, labor force participation and wages)
• US capital spending trends are slowing (e.g., capital goods orders ex-aircraft)
• Countries like Brazil are showing signs of industrial fatigue due to an overly strong currency in 2010-2011
• The US election does not look like it will bring clarity to the US fiscal/debt ceiling divide (polls show Democrats keeping the White House and Republicans keeping the House of Representatives)
• US housing is staging a modest recovery, but it’s not a game-changer given its smaller contribution to employment
• Corporate profits are high, but the trend in EPS revisions is negative and profits growth is slowing

However, global equity markets have done well, up 13% so far in 2012. The bottom line: with the world drowning in liquidity, the right portfolio moves this year have been to take advantage of low equity valuations, look through all the economic weakness and expect that continued monetary stimulus will  eventually bear fruit. We have done some of that but not as much as we might have, and as things stand now, global equity markets have outperformed what I had expected. The world’s Central Banks have made it clear that inflating their way out is preferable to the alternatives, an environment that is conducive to risky assets that are priced very cheaply, until and unless they lose control of inflation."

For those confused, Cembalest only added "unless" out of political courtesy, because as even the Fed itself admitted last night, first via St. Louis Fed's James Bullard and soon everyone else, the Fed has finally been exposed as being nothing but a puppet tool of politicians, who in turn have always been sponsored muppets of Wall Street (Who can possibly forget Chuck Schumer telling Bernanke to "get to work Mr. Chairman"). In other words, we now know politicians run not only fiscal, but monetary policy. How to hedge against this apocalyptic proposition? Simple. Cue Kyle Bass: "Buying gold is just buying a put against the idiocy of the political cycle. It's That Simple."

It really is.

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QE3: Watering the Money Tree

A third quantitative easing program almost certainly awaits because the Fed is incapable of letting interest rates rise due to the detrimental effects this would have on their balance sheet. The only way they can secure interest rates at a lower level than they were purchased is to keep on buying more securities with printed money and enforce a cap/ceiling on market interest rates. 

The Fed is certainly not going to sell assets because they are currently the major purchasers of the asset markets they participate in, i.e. Treasuries, agency debt and mortgage backed securities. The Fed being the major holder and purchaser of particular assets has led the Fed to mark their assets to prices which they would pay, not necessarily the price of an outside buyer, and should the Fed become a major seller of these assets the need for mark downs versus current valuations is highly likely. In this circumstance, the Fed will again come face to face with their tiny capital base as they are unable to absorb losses of even 1% on their current asset markings without going insolvent.

Without QE3, interest rates can be expected to rise, and this should influence the Fed to step in and try restrain yields. Even though money printing has continued since the end of QE2, this is insufficient to maintain the Fed?s bubble. If interest rates rise substantively, this will put major pressure on sovereign, state and household solvency and could lead to near future bankruptcies across the board. The Fed will not stand idle and will come in to try paper over the markets problems in an illusory rescue attempt.

Bill Gross, manager of the world?s largest bond hedge fund, says bond yields should rise after the Fed ends QE2. Who is going to buy those treasures when a trillion dollars of purchasing power exits the market, he asks? (see video interview) With the Fed?s intent to restrain bond yields from rising, another money printing program is the only solution in their tool kit.

Whether preemptive or responsive, the Fed?s reaction this time around will likely be much faster than in previous episodes. The Fed is much more equipped now, after having several new powers resolved by congress and experiencing the 2008 chapter of the crisis, and are now unlikely to be as timid and lagging going forward.

Another way of seeing the inevitability of QE3 is realizing that the Fed has two mandates, price stability and low unemployment. The Fed has convinced themselves that inflation is not a problem so the only responsibility left for them is to ensure a high level of employment. The only measure the Fed has to even attempt to influence this is to print money, and yesterday's Fed statement indicated that they are concerned about the level of unemployment, meaning they're getting ready for a new money printing program to try and address this.

All of the above points to good times ahead for gold and silver as the money printing spigot is more easily turned on rather than addressing the core issues.

Source

US Economy At Risk For 2013 Recession

The latest data of durable goods orders, released Friday by the Commerce Department showed an increase of 4.2% for July but excluding transportation goods the order declined by 04%. 

In addition orders for capital goods fell 3.4% over the same month while the June figure was revised down to 2.7%. 

The latest data are not only very weak but are a sign of the weakest economic recovery since WWII according to several US economists and analysts. The decline in capital goods orders is a sign that US companies are hesitant to invest and expand their production capacity in light of global uncertainty. 

China, Europe and Brazil, once thought as the economic drivers to set the tone of recovery after the end of the economic recession in the summer of 2009, are now struggling themselves to keep their growth at a steady pace. 

We have seen large dips in economic growth in China to an annual rate of 8%, down from 11% during 2011, and continued fiscal and debt struggles in Europe which largely affect the US economic growth overall since both regions are crucial to the US production output and exports. 

US exports to both regions have been stagnating since 2007 due to a slowing demand from Europe and China. 

China in particular struggles with high inflationary pressures which lead the government to intervene through quantitative easing to ensure their economy does not overheat. That results in a net decline of production materials which in large part are imported from the US. 

Europe on the other hand is still not out of the woodworks when it comes to curbing the budget shortfalls and the debt/GDP ratios of some members which puts extra pressure on Germany, France and The Netherlands to control their inflation for the benefit of euro stabilization. 

The US economy continues to grow albeit at a very slow rate but should the durable goods orders continue to falter then the risk of a double-dip recession in 2013 is not unimaginable. 

This scenario would result in the unemployment rate rising again to 9%, currently at 8.3%, when the expected budget cuts and tax increases take effect early 2013. 

The Federal Reserve has yet to give a sign that it is willing to implement QE3 but given the latest data it is expected that the next FOMC (Federal Open Market Committee) may hint at a higher possibility of bond buy-back programs to curb long-term interest rates even further and to encourage business borrowing and spending to keep the US economy for retracting any further. 

Written by Nick Doms © 2012, all rights reserved.