The fact that enough people still listen to Cramer is the perfect indicator of just how stupid part of our population is and it explains how we - the people - let our country lapse into systemic collapse. At it's base level, Government intervention in our lives prevents the Darwinian mechanism of natural selection from doing what it's supposed to do. That Cramer still sells his crap and that CNBC is still on the air is a perfect testament to that...Dave in DenverFor the first time since QE first started, today's FOMC announcement stunned me. Not because I was expecting something other than what was announced, but because of what was actually announced and the timing of the announcement. I have been expecting eventual global QE to infinity since like 2003. Seriously. I didn't think we would get the first indication that it's coming today, two and a half months ahead of a Presidential election, and I didn't think it would come first in the form of a direct attempt to reflate the housing market with subprime mortgage paper.
Let me explain. Here's the only important part of today's announcement (the low-rate extension to mid-2015 was highly telegraphed and is about as useless as the new iPhone 5 on Mars):
The New York Fed said it will start buying agency mortgage-backed securities on Friday, at a rate that is expected to total $23 billion over the remainder of September. It will then purchase securities at a clip of $40 billion each month. The New York Fed said it will concentrate its purchases in newly-issued agency MBS in the to-be-announced market, although it may purchase other agency MBS if market conditions warrant (LINK)Furthermore, the Fed said it will add to its purchases if the labor market doesn't improve, it will keep its policy stimulative for a "considerable time," and it left the duration of the mortgage purchase program open-ended. De facto QE to infinity.
The question is why? The Fed is specifically targeting the monetization of new mortgage issuance by the GSE's. But we've been told up and down Wall Street and from the industry promoters - Nat'l Association of Realtors and Nat'l Association of Home Builders - that the housing market is bottomed and moving higher. I have heard countless TV economists get on CNBC/Bloomberg/Fox Biz and tell us that now is a great time to buy a home (see the cover of last Friday's "Barron's").
So why target housing specifically? We lose manufacturing jobs in this country every single month. Why not target that? The two biggest problems with housing are 1) the massive shadow inventory, as detailed on this blog; and 2) the rapid decline in the average weekly income of the middle class, which means there are less people who can afford to buy a home or stay in the one they own. A mortgage purchase program will not address either issue.
What makes this specific QE program frightening is that to the extent that there is growth in housing mortgage finance, it's coming from the FHA. The FHA, as I've detailed on this blog recently, is a subprime lender disguised as a GSE. It requires only 3.5% down to purchase and someone who refinances can take down a mortgage that exceeds the value of their home and receives mortgage payment insurance at a rate that is heavily subsidized by the Taxpayer.
What the FOMC policy decision, and the timing of the decision, tells me is that the overall economy is in big trouble and the Fed is going to try and stimulate economic growth by reflating the housing bubble using sub-prime paper. That fact that the program is entirely open-ended, with no defined goals or parameters, tells me that we are on the insidious path to complete fiat currency devaluation via unlimited QE, because if this policy does not do anything, which it won't (other than generate bigger commission checks for a few mortgage brokers) - the Fed will be forced to implement even more drastic policy measures.
And this is why gold and silver have reacted so sharply today. The low on silver ahead of the policy announcement was $32.72 and $1720 on gold. As I write, silver is at $34.72 and gold is at $1769. This is an incredible reversal. It also tells you the degree to which the market agrees with my assessment. I want to conclude with a great quote from Austrian-School Economist, Murray Rothbard, which I hypothecated from my friend and colleague Jesse of Jesse's Cafe Americain:
Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium...I see a great future for gold and silver coins as the currency people may increasingly turn to when paper currencies begin to disintegrate.