Quantitative Easing To Infinity And Beyond!

“Quantitative easing” to infinity and beyond!  Fed Chairman “helicopter” Ben Bernanke, at the prompting of “The Community Organizer in Chief”,  is determined to destroy the dollar in order to restore the economy.  Kind of counter productive, don’t you think? This is Keynesian economic mythology to the power of ten.  “Quantitative easing” to infinity and beyond!

With this second round of “quantitative easing”, the Federal Reserve is purchasing U.S. Treasury securities and paying for them by creating billions of dollars out of thin air.  Because the U.S. economy is slowing dramatically, it is unlikely that the “regime” and Fed Chairman Bernanke will curtail “quantitative easing” in the near term.  This policy is setting the stage for the collapse of the U.S. dollar because at some point in the process, foreign currencies will reflect this unprecedented helicopter dump of cash into the the U.S. dollar. The dollar will decline while foreign currencies rise in value against the devaluing dollar.

Before I get into how “quantitative easing” virtually guarantees a collapse of the U.S. dollar we need to examine “helicopter” Ben’s latest comments on the economy.

Fed ‘will strongly resist’ deflation: Bernanke

Economy will grow in second half, pickup in 2011

By Gregg Robb,  MarketWatch

JACKSON HOLE, Wyoming (MarketWatch) — Federal Reserve Board Chairman Ben Bernanke said Friday that the central bank would not sit idly and let the U.S. economy sink into a period of deflation.

“The Federal Open Market Committee will strongly resist deviations from price stability in the downward direction,” Bernanke said in a speech opening the Fed’s annual summer policy retreat.

He said the economy would continue to grow at a slow pace in the last four months of the year and the pace of growth would pick-up in 2011.

“I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace,” he said.

And despite the weak second quarter, “the preconditions for a pickup in growth in 2011 appear to remain in place,” he added.

U.S. stocks turned lower after the Bernanke speech was published, though his speech also coincided with a revenue downgrade by the world’s leading chip maker, Intel. By late morning, stocks were broadly higher again.

Bernanke: Fed still has tools

Bernanke said there was only a low risk of deflation. But he acknowledged that inflation has dropped to a level slightly below that which FOMC participants view “as most conducive to a healthy economy in the long run.”

He spoke at length about the tools left in his toolkit to fight deflation and promised to use them if the outlook deteriorated significantly.

Responding almost directly to an op-ed published Thursday by ex-Fed vice chairman Alan Blinder saying the Fed was running low on ammo, Bernanke said: “The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do. As I will discuss next, the issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.”

At the top of his list of options — more purchases of Treasurys by the Fed. Bernanke said these purchases would ease financial market conditions.

He said the central bankers thought that buying Treasurys was the proper course of action. But added “we do not rule out changing the reinvestment strategy if circumstances warrant.”

Bernanke said the FOMC “has not agreed on specific criteria or triggers for further action.”

In early August, the Federal Open Market Committee took a baby step toward further quantitative easing by deciding to hold the size of the Fed’s balance sheet constant through reinvesting principal repayments from mortgage securities into Treasurys. Bernanke described that option Friday as avoiding “an undesirable passive tightening of policy that might otherwise have occurred.”

The economy is slowing at a time when the Fed has already cut interest rates to close to zero. Since March 2009, the Fed has promised to keep rates low for an “extended period.”

Bernanke said Friday the FOMC would consider modifying the language to communicate to investors that it plans to keep the federal funds rate low for a longer period than is currently priced in markets.

He also said the Fed could lower the rate of interest it pays banks on the reserves they park at the central bank, though he stressed that the effect in isolation would likely be relatively small.

One policy option Bernanke rebuffed was to increase medium-term inflation goals above levels consistent with price stability. “I see no support for this option on the FOMC,” the central bank chief said.

He didn’t mention buying private assets like credit-card receivables or corporate debt, as some economists, including Blinder, suggest.

Fed Speak

Fed Chairman Bernanke should be replaced, immediately, if not sooner! He talks of having more tools in the toolkit, the first of which is for the Fed to keep buying treasuries. All this means is that the government will print money in order to buy its debt because no one else is interested in holding it. (I know the Fed is not part of the government, but when it colludes with the “regime”, it might as well be!)  When the government is forced to buy its own debt, monetization is in full swing with inflation coming, followed by  hyper-inflation.

Quantitative easing” is exactly the wrong thing to be doing in this situation because it destabilizes the monetary system. The Fed wants to purchase Treasuries in order to keep interest rates low and to stimulate lending.  In effect they are creating more debt at a time when fiscal deficits are already out of control.  A quick look at the Fed’s obligations will show that  two-thirds of the Fed’s balance sheet is represented by Fannie and Freddie Mac securities.  These are worthless pieces of paper that are being propped up by the U.S. Treasury. The Fed cannot unload these obligations without adding more and more debt to the Treasury. Catch 22!  This creates a situation where interest rates are being artificially held down during a time of building long term inflationary pressures.

The Real Effect That “Quantitative Easing” Will Have On The Dollar

If you examine the long term effects of “quantitative easing” in terms of interest rates, the interest rates in the U.S. should rise to reflect the rising amount of currency that is being created and consequently devaluing the dollar.   If we lived in an orderly and sane world, which we don’t under “The Community Organizer In Chief”, the increasing inflation risk would be reflected in the interest rates and the U.S. dollar would gradually decline while  foreign currencies would gradually appreciate against the dollar.

Unfortunately, because of economic weakness and the demand for Treasuries by the Fed, “quantitative easing” is artificially moving interest rates down at a time when inflation is building in the monetary base.  This narrow minded approach by the “regime” and its  willing accomplice, the Fed will cause the dollar to depreciate immediately, rather than gradually.  This will not be good for America or the middle class, which is exactly what, I believe, “The Community Organizer In Chief” wants.  You cannot install a Marxist regime without eliminating the middle class.

“Quantitative easing” is going to force a major re-adjustment in the U.S. dollar because the Fed’s manipulation of the Treasury bond market is going to cause the dollar to abruptly snap to equilibrium once bond purchasers realize how they have been conned relative to the dollar’s true value. Beware of the U.S. long bond at this time!

Ben Bernanke has no idea of the  damage he is about to bring down on the dollar and the U.S. economy,  or,  maybe he does if he is but a “useful idiot” in this attempt at destroying America. Massive central bank easing is is a form of governmental cowardice that puts off the need to restructure debt and correct  fiscal deficits, by delaying the inevitable financial reckoning by choosing to  instead destroy the value of the currency.

Inflation is the most important tool of any government policy whose intent has to be concealed. If it is essential to hide its intentions, a government that intends to introduce anti-democratic policy, must mislead its public because  the continued existence of said  government depends on deceit and diversion.  Governments that do  not think that it is necessary to gain the consent of the governed, resort to inflation to raise taxes without taking the responsibility of actually raising taxes.

Gold Reflects the True Value Of The U.S. Dollar

“Quantitative easing” will dramatically affect the value of the dollar and the value of gold.  With Fed Chairman Bernanke’s  statement this week,  deflation concerns  will probably be removed from the investor equation.  Gold will respond to this perception and the reality that is the inflation building, with the expansion of the monetary base (read creation of money out of thin air) and rise due to the decrease in the dollar’s value.

It doesn’t take a rocket scientist to see what is coming down the pike.  I won’t pretend to give you a timetable, but I will say that inflation and hyper-inflation are coming sooner rather  than later. Gold and silver offer you the chance to preserve your wealth under these conditions. It makes no difference which ideology you follow, rich conservatives and “smart” liberals will preserve their wealth through gold and silver acquisitions.  You should follow suit with whatever percentage of your portfolio that you are comfortable.

Fed Chairman “helicopter” Ben Bernanke, at the prompting of “The Community Organizer in Chief”,  is determined to destroy the dollar in order to restore the economy. No one could be that inept, which leads me to think that it is all by design. This is Keynesian economic mythology to the power of ten.  “Quantitative easing” to infinity and beyond!

Till next time, good luck and good trading.

More Gold Market Analysis:

• Quantitative Easing Explained (Simply)
• Bernanke = Inflation
• Fed: Just A Bump In The Road?
• Fed Ushers in Gold Era
• Gold Surged On Bernanke’s Testimony!

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