[T]he Federal Reserve’s long and large scale purchases have significantly lowered long-term Treasury yields. - Ben Shalom Bernanke, Keynote Speech at the 2012 Jackson Hole Federal Reserve Conference LINKFor those of you who are unaware, Rudolph von Havenstein was head of the German Central Bank during the infamous Weimar hyperinflation/currency collapse period (1921 - 1923). As most of you know, every German who had their wealth denominated in German marks on the night of November 13, 1923 woke up the next day to discover that their paper wealth was worthless. Gold, for all intents and purposes, went to infinity as measured in the German mark (gold began the Weimar Republic period at 170 marks and peaked at 87 trillion marks).
I mention this as background because, despite the Fed's lip service to the contrary about reducing QE (the "taper"), the Fed has no choice to not only continue printing money, but will soon be forced to increase its rate of printing. Make no mistake, this is going to get crazy and they will probably eventually start buying assets other than Treasuries and mortgages, such as municipal bonds, pension liabilities and equities.
I wrote an article for Seeking Alpha that seems to be getting a lot of attention around the internet on this subject:
Since Bernanke first uttered the word "taper" in mid-May, the financial media circus cycle of "they'll taper this time around" has been repeating itself before every FOMC meeting and after the subsequent release of the FOMC meeting minutes. And yet, the Fed continues to defer reducing its QE policy after every meeting despite constant overtures to the contrary. The truth is that reducing the level of QE right now would likely cause a repeat of the 2008 near-collapse of the financial system, hurling the economy into a serious depression.You can read the entire piece here: Don't Fall For The Taper Talk - Again
The first indication that I may be on to something here is the price pattern of the U.S. dollar. Despite all the dollar bulls permeating the airwaves of financial media with their mindless drivel, this latest manipulated dead-cat bounce in the dollar appears to have run out steam pretty quickly:
As you can see from this chart, the USDX was unable to even bounce back up to its 200 day moving average in this latest dead-cat bounce. It appears ready to resume the nasty decline that began in July, after the Fed deferred tapering QE despite Zimbabwe Ben's threat to taper in May. In other words, the smart money (the Chinese, for instance) understands what's happening in this country and it (the smart money) is using every bounce in the dollar to dump (not just the Chinese, by the way).
For those who are unaware, Janet Yellen gave a policy speech in which she stated that negative interest rates may be necessary to stimulate employment. Just like Zimbabwe Ben's infamous "helicopter" speech in 2002, Yellen's speech offers insight into how she thinks about the implementation of monetary policy as a means of attempting to manipulate the economy. The USDX knows this. Most people who get their market news from CNBC or Bloomberg do not.
We are going to see higher rates that will kill the economy once and for all unless the Fed increases its bond buying program. The market is telling us that, not me. It's gotten so silly in terms of the perma-bull analysis - or what passes for analysis in this day and age - that I read an article over the weekend in which the money manager argued that higher interest rates would be bullish for the economy. Sorry pal, the only thing higher rates will signal is that the Fed is printing even more money in a desperate attempt to keep the bond and stock markets from collapsing. This may well drive the Dow higher, but please review the history of the Weimar Republic leading up to and including November 14, 1923 if you want to see how this ends. Here, I'll make it easy for you: LINK
What is even more frightening, especially given the degree of ramped up U.S. militarism, and the role played by the NSA in this, is to contemplate what happened in Germany after the Weimar Government collapsed...wouldn't it be diabolically ironic - in fact, tragically amusing - if Ben Shalom Bernanke and his successor, Janet Yellen, were the ones who ushered the U.S. into a similar type of Government that succeeded Germany's Weimar period...