Posts Tagged ‘monetizing the debt’

With QE3 Federal Reserve And Obama Administration Fully Qualify For Definition Of Insanity (Doing SAME Thing Over And Over And Expecting Different Results)

September 14, 2012

Things aren’t getting better.  Obama told you a lie.  Democrats have been telling you lies.  I (and other conservatives) have accurately and reliably told AND PREDICTED the truth from the get-go.  As I will document in this article.

First of all, the QE3 that was launched today is an open recognition of the failure of the Obama administration by the Federal Reserve.

The initial title of this article – as you can see by examining the link itself – was “GOLDMAN: Bad Jobs Report Puts Odds Of QE Next Week Above 50%.”

GOLDMAN: It Looks Like QE Is Coming Next Week
Joe Weisenthal|Sep. 7, 2012, 8:47 AM

Quick blast outta Goldman.

BOTTOM LINE: With today’s August employment report showing a nonfarm payroll gain of 96,000 and an unemployment rate of 8.1% because of a drop in the participation rate, we expect a return to unsterilized and probably open-ended asset purchases at the September 12-13 FOMC meeting.

MAIN POINTS:

1. We now anticipate that the FOMC will announce a return to unsterilized asset purchases (QE3), mainly agency mortgage-backed securities but potentially including Treasury securities, at its September 12-13 FOMC meeting. We previously forecasted QE3 in December or early 2013. We continue to expect a lengthening of the FOMC’s forward guidance for the first hike in the funds rate from “late 2014” to mid-2015 or beyond.

So this isn’t a “good thing.”  This is a bad thing.  The 200 point increase in the stock market is a temporary blip and ultimately only the institutional investors who can move money around in microseconds will be able to benefit from it.

Here’s another article I wrote back in August that cites proof that the QE3 that we just saw Friday is the result of the Obamanomics disasterThe Fed simply didn’t launch QE3 because Obama’s economic policies are working; they did it because Obamanomics has utterly failed.

Second, let’s look at the “success” of quantitative easing:

Here’s more on that from an article I wrote back in August 2011.  Notice that I predicted with complete accuracy that QE2 would fail and that we would be at precisely the point where we are now trying a THIRD round of quantitative easing.

And this isn’t really even “QE3”; it’s really “QE4.”  Because Operation Twist basically WAS QE3.  It was certainly at the very least a “primer” for QE3.  I’m hardly the only one to say that, as it’s rather easy to show.  Just how many times do we have to keep trying this???

As long as Wall Street keeps getting its massive doses of sugar (really more like crack cocaine) from the government, it keeps feeding and feeding from the massively-government-subisidized feeding trough.

Look at the chart above and answer this question: if I were a drug addict pursuing doses of crack, how would a graph of my behavior look different?  I’d have my hit (QE1) and then crash; then I’d take another hit (QE2) and then crash; so I’d need another hit (QE3).  And then another one, ad infinitum.  That is the nature of destructive addictive behavior; and the addict either changes or he dies.  We’ll see in November if we’re ready to change or if we want to keep pursuing economic crack until we collapse and die as a nation.

How many times do you keep doing the same thing?  Now that we are at “QE3,” how is this not the classic definition of insanity???

What do you think the odds are that the market is going to tank again just like it did the first two times in anticipation of a QE4????  And you need to realize that a vote for Obama IS a vote for QE4.  And QE5.  And we’ll be a banana republic before Obama’s Fed would have a chance to do a QE6.

Not counting QE3 today, the Federal Reserve has pumped (or dumped) more than $2.3 trillion in money that it invented by adding zeros to their computer under Obama.

Let me ask you a question?  Where did that $2.3 trillion go?  Are you richer???

You sure aren’t.  In fact, even if you blame the ENTIRE recession on Bush (as liberals invariably do), Obama has still been very nearly TWICE as disastrous for household incomes in his “recovery” than you can blame Bush for during “his” recession.  You’re being lied to every single day.

When George Bush left office, a senior citizen with $300,000 in bonds – basically a fairly average retirement nestegg – could collect $1,500 a month in interest.  Which was enough for them to live on and be able to have the principal for emergencies and hopefully be able to leave that principal to their children.  But Obama and Bernanke have obliterated that; now that same $300,000 is producing only $200 a month in interest.  Which is very obviously nowhere NEAR enough to live on.  And so senior citizens are eating away at that nestegg that they counted on at a very alarming rate.  Obama and his failed policies have screwed these people – and the mainstream media will NOT talk about it.

Now the Fed balance sheet is going to be over $3 trillion.  And you can add to that shocking tally another $40 billion every single month for the foreseeable future.  Before Obama took office, it was $800 billion.  Nobody’s talking about what that massive devaluation of our currency is going to ultimately cost us.  Nobody is talking about the fact that the people who are going to pay the highest tax as a result of this action – and it IS a regressive tax – will be retirees who will see the value of their savings drop even as they look at interest rates and pension funds that pay them nothing.  Retirees are not in a position to snort the crack of quantitative easing; they depend mostly on bonds.  And the Obama administration and the Federal Reserve have decided to stab the bond market  that older investors necessarily depend upon in the heart to artificially inflate the stock market.  Until they have to do it again.  And again.  And of course pretty soon again and again after that.

Commodities like oil and food – which conveniently are being ignored as proof positive that we are already seeing MASSIVE inflation – will continue to go up and up and up (see here and here and here for examples).   The fact of the matter is that prices are rising dramatically and HAVE BEEN rising dramatically, and what just happened today will sure that they CONTINUE to rise dramatically.  And everybody but Obama and the Federal Reserve know it.

I put it in biblical terms here.  And I pointed out:

The only thing propping up the economy under Obama’s morally and fiscally idiotic policies is QE2. Banks and major businesses are not being allowed to fail (it’s all too big too fail in an increasingly fascist system in which the government dominates the banking and corporate spheres). Right now, the system Obama has only made more broken is being kept afloat in cash being created out of thin air. The last time quantitative easing ended, the DOW immediately lost 16% of its value in two weeks. And QE2 is set to end in June.

This means QE3, and then of course QE4. Because “QE” means “Quack Economics” far more than it should mean anything else.

I also pointed out that this would fail way back in 2010.  And I pointed out that all the Federal Reserve is doing is monetizing Obama’s damn insane deficits.

But the real inflation monster is still yet to come.

Back in May of last year I wrote this:

QE2 is the economic equivalent of sugar in nutrition. Will it provide quick energy? Sure it will. Will that quick energy come at the expense of future health? You bet it will.

Right now, as a result of the Obama Federal Reserve’s policy of increasing the monetary supply by buying debt from itself (literally creating money out of thin air), there is more economic activity. Right now, as a result of this policy, credit rates are lower. Fewer banks and corporations are going under because of the ready access to cheap money. Investors see the stability and invest.

We should all feed our children tons of sugar, so we can enjoy the short term bonanza of frenetic activity.

Unless you worry about all the cavities, the weight gains, the diabetes, and of course that huge depressing crash with all of those catastrophic health consequences that necessarily come later.

The first time we ended QE1, the stock market lost 16% of its value in two weeks. Which is to say it didn’t work the first time for the same reason it won’t work this second time. Or a necessary third time, etcetera.

One of the more sinister effects of quantitative easing is that it essentially becomes a tax on saving. You were busy at work putting away as much as you could during a period when your money was worth more. But now, as a result of artificially increasing the money supply, all that money you accumulated in saving is worth less. Why is this? Because you can increase the money supply all you want, but you’ve still got the same finite amount of goods and services. And when you’ve got twice as many dollars in the money supply as you had before, over time those same goods and services will cost twice as much as before, and so on.

Right now, prices are going up dramatically on virtually everything that matters. And yet the only ones who refuse to admit it are the federal government and its staunchest mainstream media propagandists who think and report what the Obama regime wants them to think and report.

In another article I wrote over two full years ago:

An increase in the money supply is rather like an overdose of drugs. And in this case the effect of the overdose will be hyperinflation. Basically, the moment we have any kind of genuine recovery, our staggering deficit is going to begin to create an ultimately gigantic inflation rate. Why? Because we have massively artificially increased our money supply beyond our ability to actually produce real wealth, and that means that money will ultimately be devalued. There’s simply no way it can’t be. If simply printing money solved financial problems, the government could just mail everyone several million dollars, and we could all retire. The problem is that more money chasing a limited supply of goods simply pushes up prices higher and higher without doing anything to solve the underlying economic problems. If we have a recovery, with increased economic activity, there will be increased demand on the money supply, forcing an upward climb in interest rates as a means of controlling the currency. And then we’ll begin to seriously pay for Obama’s and the Democrat Party’s sins. Paradoxically, the only thing preventing hyperinflation now is the recession, because people aren’t buying anything and therefore aren’t competing for those limited goods.

THAT is why we haven’t yet experienced truly catastrophic inflation YET.  But the moment we ever actually start to get out of the economic hellhole Obama has dug us into, we will see inflation at levels that will shock and dismay you.  You mark my words.

Now that we are officially at QE3, I want you to watch this video to see what necessarily awaits you:

Get ready, because the American economy WILL be going on a scary ride:

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Fed Changes Mind After Changing Mind, Monetizing Debt Again As America Flushes Way To Ruination

August 12, 2010

First, the New York Times headline:

Fed to Buy U.S. Debt, Saying Recovery Has Slowed
August 10, 2010, 2:19 pm

The Federal Reserve acknowledged Tuesday that its confidence in the economic recovery had dimmed, and it announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities, The New York Times’s Sewell Chan reports from Washington.

Bu bu but I thought Barry Messiah said this would be the summer of economic recovery.  I thought Barry Hussein had kissed the economy with his beatific wonderfulness and made it all better.

The fourth paragraph in the Slimes article underscores the fact that the Keystone cops of the Obama administration have absolutely no idea what they’re doing:

The Fed’s new stance marked the completion of a turnabout from a few months ago, when officials were discussing when and how to eventually raise interest rates and gradually shrink the $2.3 trillion balance sheet the Fed amassed through its response to the 2008 financial crisis.

Ben Bernanke came out back in February and had this finance fit:

Wednesday, Federal Reserve Chairman Ben Bernanke warned Congress that the Federal Reserve does not plan to “print money” to help Congress finance the exploding U.S. national debt.  In fact, Bernanke told Congress that the U.S. could soon face a debt crisis as bad as the one in Greece if the U.S. government does not get things in order financially.  This represents a fundamental change in policy for the Federal Reserve, because they have been enabling the massive borrowing by the U.S. government over the past couple of years by “buying” the majority of new U.S. government debt that has been issued.  But now the fat cats over at the Federal Reserve have apparently changed their minds.  Using uncharacteristic bluntness, Bernanke told Congress that the Federal Reserve is “not going to monetize the debt”.So why is the Federal Reserve changing course?

Well, have no fear: the Federal Reserve is Re-changing course.  Like a boomerang that comes back around to smack an ignorant fool right in the head.  Perhaps they have come to realize that the U.S. economy is about to flush down the drain and plunge into a deep, dark hole, and they figure the fall might be softer if we land on giant piles of worthless currency.

Yes we’ll monetize the debt.  Oh no we won’t.  Oh yes we will.  Stop arguing with me!  But I am you!

I thought the following was a good article due to its provision of a historic context for today’s Fed decision:

Fed begins monetizing the deficit

The Federal Reserve, in announcing the results of this week’s meeting of the Open Market Committee, surprised the market by revealing it will begin purchasing US Treasury notes and bonds with the principal income it receives from its vast holdings of Fannie Mae and Freddie Mac mortgage securities. This practice – wherein the Fed buys up US government securities and injects cash into the public market as payment for these securities – is a form of monetizing the debt. The last time the Fed did this on a big scale was back in the 1960s when it attempted to mop up the excess Treasury securities that were flooding the market as a result of Lyndon Johnson’s efforts to finance the Vietnam War. That Fed program was viewed at the time as a failure, since the cash the Fed put back into the economy in exchange for the securities was a big reason – perhaps the major reason – why price inflation accelerated from the late 1960s until a decade later, when Paul Volcker managed to squelch inflation once and for all with forbiddingly high interest rates.

The market was expecting some sort of monetary stimulus, but not this. The expectation was that the Fed would renew its “quantitative easing” program involving Fannie Mae and Freddie Mac securities – a program designed to push down long term mortgage rates. That program was successful inasmuch as mortgage rates are at record lows, but it left the Fed with well over a trillion dollars of these securities on its balance sheet. Fed officials have lately been pondering publicly how to get rid of these securities, and apparently have concluded they can’t under present market conditions without forcing mortgage rates back up again, which would only hurt the housing market. Instead, these officials have concluded that the Fed has no choice but to hold on to these securities until they mature, which is well over 10 years from now for the portfolio.

The Fed receives billions of dollars of principal and interest payments every year on this portfolio, and what to do with this cash has always been open for discussion until now. But using principal proceeds from these securities to monetize the government debt is fraught with risk. For one, should the housing market start to weaken again and foreclosures rise from current levels, the Fed will be sitting on billions of dollars of credit losses on its portfolio. This could eat up most if not all of the profit it would otherwise earn on this portfolio. Second, older investors have memories of the nasty inflationary consequences the last time the Fed monetized the debt, and the market has become very skittish about the risk of inflation, and maybe even hyperinflation ala Weimar Germany, that could result from the enormous fiscal and monetary stimulus put into the economy since 2007.

In terms of these risks, the best thing the Fed has going for it at the moment is that the pricing problem facing the current economy is not inflation, but deflation. A growing number of economists, and even some Fed governors, are worrying outright about deflation, but at least in a deflationary environment the Fed is given a lot more leeway to monetize the debt and build up its balance sheet as a consequence. The Fed press release today did not mention deflation per se, but the FOMC no longer described the economy as “progressing”, as it did in June. Instead, the Fed sees an economy with substantial slack, a stagnant housing market, repressed earnings power for workers, and very low inflation.

The bond market was happy to buy Treasuries on this news, concentrating in the 2 to 10 year maturities, in anticipation of higher prices (and thus lower yields) once the Fed begins actively purchasing. So far, in other words, the bond market sees no risk of inflation, much less hyperinflation, and is content to see yields continue to head to record low levels. Such excessively low yields on government bonds have only been seen in deflationary economies like Japan has experienced for nearly two decades. This is in essence what the bond market is forecasting for the US economy.

The stock market, which has been on a tear since early July, took this news in stride, but time and past experience is weighing heavily on this stock rally. When bond yields fall to record lows, this has never boded well for equities. In a deflationary economy, stock prices are one of the main victims, and the US stock markets have so far shown no significant adjustment downwards to reflect deflation. Stocks may have some serious “catching up” to do.

At the least, we can say we are no longer in that environment in the spring when Fed governors were talking seriously about how they were going to remove all their monetary stimulus now that the economy has recovered. Instead, we are witnessing yet another round of monetary stimulus, a recognition by the Fed that their previous efforts have failed to ignite a sustainable recovery.

All this from the Federal Reserve, an entity that is neither “federal” nor a “reserve.”  It is a private bank that issues currency based on fiat of delegated institutional power.  And what it is doing now is akin to photocopying a dollar bill to pay a credit card bill.  Another analogy would be if you were facing bankruptcy, and decided to start buying your own furniture from yourself.

Mind you, this is only partly the Federal Reserve’s fault.  They are in an impossible position as the Failure-in-Chief continues a path of spending America into collapse, and they have to figure out how to finance Obama’s addiction.

The Obama administration alternately fearmongered and promised that if the stimulus was passed that unemployment would not rise above 8%.  They lied.  The rate has been dropping from an earlier high exceeding 10% only because discouraged workers who give up are paradoxically dropped off the roles and aren’t counted.  Then they spent months creating pure fictions such as “created or saved” as “evidence” that Obama’s failed policy had succeeded.

To quote:

“One can search economic textbooks forever without finding a concept called `jobs saved.’ It doesn’t exist for good reason…” – Allan Meltzer, professor of political economy

“There is no way to measure how many jobs are saved.” – Harvard economics Professor Gregory Mankiw

Then Obama spent months telling us that the economy was recovering when it really wasn’t, culminating in his bogus “summer of economic recovery.”

This is an administration that falsely takes credit for a false recovery even as they falsely blame Bush and refuse to accept responsibility for their own policies.  It’s “win, we win, lose, Bush loses.”

These people should have zero-point-zero-zero credibility.