Thursday, September 13, 2012

FOMC: This Is The Beginning Of "The Big Print" - Unlimited QE

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 Denver
For 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.


  1. (Quinn in Littleton).

    This is it Dave. Open ended debt monetization on this scale is not sustainable. It is only a matter of time now. It's not even entertaining at this point. I suggest every single reader of this blog study When Money Dies like it's the bible over the coming weeks. Q

    1. "Money" The Greatest HOAX on Earth.

      "The collapse of the people’s confidence in the created money, which was forced upon them by legal tender laws, will have a bad effect upon the government. It would be to the advantage of those really in charge to avert a total loss of confidence in their created money, to declare bankruptcy, initiate a deflation, returning so much wealth on the dollar and issuing a new redeemable one, if only to continue their power over us. It is inevitable, we will see a tremendous depression and a return to gold and silver as wealth mediums of exchange – it has always gone that way. – Money :The Greatest Hoax on Earth, Merrill Jenkins, 1971,
      Central bankers have been content to extract the wealth of their individual nation's citizens with the art of delusion, perfected over many years of practice. The whole international system is about to collapse because they have become so skilled in the United States that the Fed has used the scheme on citizens of other countries to such a degree that their individual systems have now been placed in jeopardy.

    2. There are two problems with the whole when money dies crap scenario. The assumption is always that it is going to happen fast with a waterfall rather than a continuous slow bleed out over decades. All of the Rothbardian, Keynesian, Ricardian crap is just so out of date. It is old men remembering 40 year old economics.

      1. Just in time has blown out traditional economic theory the idea that you reduce interest rates and manufacturers build into stock to create demand is just such old hat. These days you need orders first and then the manufacturer builds. You can reduce interest rates to negative and you won’t get a pick-up in the real economy ever because there are no orders all you do is increase speculation and make the markets wildly fluctuate as the money pumps in with zero or very impact on the real economy. The multiplier simply doesn’t work anymore. To create demand you need money in the hands of consumers and the system simply won’t allow the proles to get money because all the speculators and parasites living off the injected money whine and moan about work ethics and wealth creation. It’s a joke all the Fed can do today is channel stuff.

      2. The whole Miller and Modigliani crap about all holders of the same class of security being equal is just ludicrous. Tell that to a Libyan right now with all their foreign holdings stolen and their oil, gas and water assets sold off for pennies on the dollar to meet IMF loans forced on them by a US invasion. The response has been to treat the ambassador and staff as enemy combatants. It is hilarious to hear the US news cycle treat this as the work of Al Qaeda not as blow back for theft. As President Morales said the only reason that the USA hasn’t suffered a coup is because the US doesn’t have a US embassy on its soil. The whole world is operating on an international version of the film Training Day. The Gulf Arabs hold much more than 50% of US dollar debt if you take into account wash through loans in London and more importantly the recent wash through purchases in Japan. The Chinese are really no longer a big player these days. Reality is if the US and the UK really run into problems they are just going to cash out the Saudis and the Qataris et al just like they did the Libyans. Everybody knows an attack on Iran is just a cover for an attack on the Gulf’s international bank deposits and asset holdings. Even the Saudis know it. So when the numbers get large enough they will simply cancel out 60% of the US debt without blinking and start again. Look at Libya. Not that the proles in the US or the UK are going to see a penny but the debt is going to return to “friendly” hands for the pound of flesh to be extracted later.

      It is going to be a lot slower and there is going to have to be a lot blood on the water before this system finally goes down. As we go down the critical path the solutions are going to get more and more violent and kinetic. You will know the end has been reached when every US embassy in Latin America has been closed and every US asset has been nationalized. This is how the British Empire ended and it took two world wars over 40 years before it really wound up.

    3. Reading this is even better:

      The Inside Story on the Gold-for-Oil Deal that could Rock the World's Financial Centers

      In October of 1997 at the internet's only gold discussion forum of the day (hosted by Kitco), a series of remarkable postings began appearing under the pseudonym "ANOTHER"....

      ANOTHER demonstrates a feel for and understanding of the gold and oil markets that indicates connections at the highest echelons of international finance, yet for reasons having to do with his "position," as he has indicated, he wishes to remain anonymous. If his "THOUGHTS!" are theory; they are good theory. If they are speculation; they are reasonable speculation. If they are supposition; they are well-grounded supposition.

      -Sicilian Gold

    4. 1997 says it all doesn't it. The LBMA was going to implode in 1997. Yet the date is 2012 and the Arabs have been 'buying' all this time yet they still haven't imploded the LBMA. Is is because they can't take their gold out? China and Russia can take their gold out because they have H bombs. Venezuala can because they left a huge amount in $'s and were going to cause a stink. What can the Arabs do? Waive a falafael?

      We will still be talking about this in 2020, the price of gold will be higher the system will still be crumbling and the US will be withdrawing it's troops from Saudi instead of Iraq.

  2. Thank you again for gracing us with your thoughts Dave.. I have learned much from you (and Jesse too). In the face of many voices saying that the FED would let the markets down (see for instance Charles Hugh Smith from today (, I predicted a robust new QE of at least $30B monthly, focused on supporting the assets that banks hold, namely housing. My assets are doing fine today as a result :) (check out SA... hot dang). 1 Kg Lunar Dragon.

  3. Felix Zulauf - Gold, Systemic Collapse & The End Of Fiat Money

    “The cost is that the fiat currency, paper currency standard, is in the final stage of the ‘super cycle.’ Fiat currency systems always collapse at the end. We are in that stage of the super cycle where things are accelerating.

    I don’t know how many years we still have, but you can assume that central banks, as the ECB stated just recently, will do everything necessary to prevent a collapse of the system. That means they will even finance bankrupt governments, they will finance bankrupt banks, they will finance every bankrupt entity that is important to the system.

    That means they debase our paper currencies further and further, and in an accelerating way. This is very bullish news for all of the gold holders of course. A good year or so ago, gold had accelerated into a sort of a climax peak above $1,900. It has taken almost a year to correct that sharp advance.

    When asked how the collapse of the fiat system will unfold, Zulauf responded, “That’s a difficult one because I cannot tell you when it occurs, but usually in a super cycle you have to debase your currency more and more. You monetize your debt more and more. Your level of debt on a public-sector basis, and on a system-wide basis goes higher and higher until the system collapses.

    I think we first see, over the next couple of years, the transfer of government debt from private balance sheets to central bank balance sheets. I do believe the 30 year bull market in government bonds is over. I mentioned in the media (Barron’s) Roundtable that one should be selling half of what he owns, and should sell the other half in September at the latest.

    I think the whole game is over. Bonds are very overvalued. The real return is negative. Normally bonds yield at least as much as nominal GDP growth. Nominal GDP growth at the present time is about 3% or 4% in the US. I’m not suggesting we go right there tomorrow (in terms of yield), but bonds are very overvalued.

    I have stayed bullish, but it’s over. The game is over and we have to look for other assets.”,_Systemic_Collapse_%26_The_End_Of_Fiat_Money.html

  4. Don't be too hard on Cramer, Dave. I have actually made some fairly decent coin by going against some of his goofy calls. I believe the term is "contrary indicator".

    1. LOL. "Ward, I think you were a little to hard on the Beaver last night"

  5. I recall, not so long ago, when the powers-that-be allowed Lehman to go tits up in 2008. My initial reaction was "Pandora's box". Methinks today's Fed announcement is another of those "Pandora" moments, only the box this time around is a heck of a lot bigger. Me no like.

    1. We're not in Kansas anymore, Toto...

  6. I'm playing futures in silver here. Are we more likely to hit $36.50 (my ask) first or retreat back to $32.42 (my stop) first?

    1. Geez dfly, who the hell knows? Why don't you roll out to December or March silver futes and just make sure you have enough margin room to sustain a hit down to $30 or something.

  7. well my thinking is if silver broke out from $32.72 today as you reported, then it's unlikely to head back below that? too logical? i know markets aren't logical lol. I'm rolled out to december.

  8. Sienfeld's Kramer has more credibility than Cramer the Clown on CNBS

  9. Dave, what do you think of Thompson Creek Metals (TC)? Thank you.

    1. I actually am not familiar with Thompson Creek. Maybe I'll take a glance at it tomorrow. What do you like about it?

    2. TC is a moly miner. I specialize in gold/silver miners only. Moly may or may not be a great play, but it's not a monetary metal.

    3. I can't speak much to their financials but Thompson Creek is sitting pretty as far as reserves go. I often work near their BC, Canada properties. Endako (moly) was running out of reserves about 4 or 5 years ago and they did a major exploration program and added 20 years, give or take, to the mine life. Mt Milligan in BC is about to open next year. It is copper and gold instead of moly. Amazing grades and lots of them. They have the 2nd largest gold resource in Canada (6Moz) to go with billions of tons of copper. They plan to mine about 300,000 oz Au/ yr. I should add, I believe Endako is the only facility for processing moly ores in BC so any other moly mines that open will send their ore there (TTM's Chu property is nearby for one).
      Cheers and hope that helps,

      Justin from Canada

  10. "which I hypothecated from my friend and colleague Jesse of Jesse's Cafe Americain...."

    That is pure gold right there...lmao
    Both of your blogs are life preservers in an ocean of uncertainty, thx Dave. ;-)

  11. Craig Unger on the Continuing Power of Karl Rove
    September 14, 2012
    Bill talks with Craig Unger, author of Boss Rove: Inside Karl Rove’s Secret Kingdom of Power, about Rove’s behind-the-scenes maneuvering to once again affect the outcome of a presidential election.

    “Most people thought he was a creature of the Bush family,” Unger tells Bill. “I think he’s a force more powerful than that.”

  12. Louis Farrakhan Shares Shocking Info: On Ron Paul Exposing The Federal Reserve & the International Banksters

    just an observer...

  13. In Friend of Another’s (FOA) Gold Trail, he once said,

    “My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationist get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)”

    -April 2001

    -Sicilian Gold

  14. A Lonely Redemption
    That Mr. Lewis is in a rage is not unusual. A few days earlier, he had watched as the computerized stock trading of Knight Capital ran amok.

    “If Knight blows, six firms follow, and the whole corrupt thing goes up,” he said. “Predator banks and hedge funds run the market for their pleasure — there’s no rational structure, nothing!”

    He is just warming up. News reports have revealed a world he knows intimately. Goldman Sachs pays vast fines to avoid prosecution for mortgage securities fraud. Barclays manipulates interest rates. The Senate exposes HSBC as a racketeering enterprise, laundering money for drug cartels. Banks are laden with bad assets.

    And Wall Street, Washington, the press corps, everyone sits and stares like so many dumb cows.

    “The complicity on Wall Street is sickness!” Mr. Lewis says. He fixes you with his laser stare. “If you think the big firms are being honest” — his tone slides streetwise — “well, sweetheart, go think something else!”

    He knows Wall Street’s heights. He helped hire Michael R. Bloomberg, and he invested the money of two former Securities and Exchange Commission chairmen, making a fortune in the 1980s. And he knows its depths, since he pleaded guilty to stock manipulation in 1989, and was barred from the Street.

    President Bill Clinton pardoned him, and a federal court judge later said Mr. Lewis acted out of pure reforming impulse.

    Lehman Brothers, he notes, certified it was in good health in June 2008 and issued stock, attracting investment, including from the New Jersey Teachers’ Pension and Annuity Fund. Secretly, Lehman was on an intravenous drip, poisoned by bad debt.

    “My respect for their brains is too great to think Lehman’s top guys didn’t know they were conveying the cynical impression of health,” Mr. Lewis said.

    He is no less suspicious of Goldman Sachs, which has alumni sprinkled across the upper reaches of government. In a tough spot, Goldman obtained extraordinary permission to make an overnight metamorphosis from investment bank to traditional bank holding company.

    “Can I prove this was a wired deal? Absolutely not,” Mr. Lewis said. “Am I certain of it? Only 100 percent.”

    As for the whirling, three-million-shares-per-second casino of Wall Street? He sees it as rigged. “I would not risk stocks under any circumstances,” he said, “because we don’t know when this thing is going to blow.”