"Liberty is meaningless where the right to utter one's thoughts and opinions has ceased to exist. That, of all rights, is the dread of tyrants. It is the right which they first of all strike down. They know its power. Thrones, dominions, principalities, and powers, founded in injustice and wrong, are sure to tremble, if men are allowed to reason. ~ Frederick Douglass
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Monday, September 16, 2013
The FG Line- Will The FED Begin to Taper QE? The Smart Money Says "No"
After the collapse of financial markets in 2008, American government officials began triaging a financial system in desperate need of death.
By March of '09, after hijacking trillions of dollars of taxpayer money, Wall Street's bankers and the Federal Reserve embarked on the greatest counterfeiting scheme of all time. They call it "quantitative easing."
In America, if you don't like the negative connotations that go along with using a term such as counterfeiting, you simply call it something else. Thus we have the phrase "quantitative easing." It was probably the Japanese who invented the term QE and who also added that it doesn't work.
By working, that means re-installing a vibrant economy.
QE is a desperate act. In essence- all it does is simply prolong the inevitable collapse of the monetary system brought about by tremendous credit expansion and leveraging. Collapsing monetary systems are usually brought about by greedy bankers and by complicit politcians. Here's a decent history of QE since 2008.
Federal Reserve Holdings of Treasury Notes (blue) and Mortgage-Backed Securities (red)
The US Federal Reserve held between $700 billion and $800 billion of Treasury notes on its balance sheet before the recession. In late November 2008, the Federal Reserve started buying $600 billion in mortgage-backed securities. By March 2009, it held $1.75 trillion of bank debt, mortgage-backed securities, and Treasury notes, and reached a peak of $2.1 trillion in June 2010. Further purchases were halted as the economy had started to improve, but resumed in August 2010 when the Fed decided the economy was not growing robustly. After the halt in June, holdings started falling naturally as debt matured and were projected to fall to $1.7 trillion by 2012. The Fed's revised goal became to keep holdings at $2.054 trillion. To maintain that level, the Fed bought $30 billion in two- to ten-year Treasury notes every month.
In November 2010, the Fed announced a second round of quantitative easing, buying $600 billion of Treasury securities by the end of the second quarter of 2011. The expression "QE2" became a ubiquitous nickname in 2010, used to refer to this second round of quantitative easing by US central banks. Retrospectively, the round of quantitative easing preceding QE2 was called "QE1". Similarly, "QE3" refers to the third round of quantitative easing following QE2.
A third round of quantitative easing, QE3, was announced on 13 September 2012. In an 11–1 vote, the Federal Reserve decided to launch a new $40 billion per month, open-ended bond purchasing program of agency mortgage-backed securities. Additionally, the Federal Open Market Committee (FOMC) announced that it would likely maintain the federal funds rate near zero "at least through 2015." According to NASDAQ.com, this is effectively a stimulus program that allows the Federal Reserve to relieve $40 billion per month of commercial housing market debt risk. Because of its open-ended nature, QE3 has earned the popular nickname of "QE-Infinity." On 12 December 2012, the FOMC announced an increase in the amount of open-ended purchases from $40 billion to $85 billion per month.
On June 19, 2013, Ben Bernanke announced a "tapering" of some of its QE policies contingent upon continued positive economic data. Specifically, he said that the Fed would scale back its bond purchases from $85 billion to $65 billion a month during the upcoming September 2013 policy meeting. He also suggested that the bond buying program could wrap up by mid-2014. While Bernanke did not announce an interest rate hike, he suggested that if inflation follows a 2% target rate and unemployment decreases to 6.5%, the Fed would likely start raising rates. The stock markets dropped approximately 4.3% over the three trading days following Bernanke's announcement, with the Dow Jones dropping 659 points between June 19 and 24, closing at 14,660 at the end of the day on June 24.
The problem with QE is that they have been doing it so for so long- that the vast majority of Americans have forgotten (if they ever knew or cared to begin with) that QE is 100% responsible for the stock market rise and the illusion of an economic recovery. Without QE- we are living in a depression brought about by the simple expansion of credit. Just like 1929. No different.
Who benefits from QE? Anybody receiving freshly minted money and using it first. After that- it simply dilutes the existing money supply for the rest of us. So who gets first run? Bankers and other wealthy folks. By the time all that freshly minted fiat ends up in the money supply- it simply reduces our buying power.
Witness oil, priced in American petro dollars, doubling in price in five short years. It is not a coincidence.
Gold would have gone supernova had the government and bankers not manipulated it for years- desperately trying to keep the price down and contain inflation.
The problem in 1929 was that we had a gold standard which prevented bankers from printing their way out of the Great Depression which they had caused. In 1933- FDR essentially seized Americas gold without due process and in violation of the the 4th amendment. Once he and the bankers had it all, they fixed the price of gold by almost doubling it and then they began to print away. There was a secondary recession/depression which ran up to World War 2.
So the question is, can the FED end QE? We're going to find out in just a couple of days, Sept. 18. My personal guess is that they cannot. Nor do they have the political will although they might continue to talk tough until Bernanke leaves.