Today, I plan to finish my article in the afternoon – following the Fed’s “momentous” decision. Again, momentous is in quotes because I’m being facetious; as no matter what the Fed decides, the catastrophic damage has already been done. There is absolutely no way to unwind the world’s largest balance sheet – holding the world’s most unwanted assets, on heavy leverage – without destroying the global economy. Not to mention, the Fed is infamous for not only printing overtly, but covertly as well; plus, creating “alternative printing schemes” that don’t’ theoretically qualify as such; such as, for instance, the “swap agreements” still ongoing with countless European banks. In fact, “tapering” or otherwise, the only thing momentous about today – ironically – is that the Fed’s balance sheet will for the first time exceed $4 trillion; i.e., five times above its pre-2008 level.
Not only has the Fed fostered massive, worldwide inflation, historical wealth inequality, a stagnant global economy and the lowest U.S. Labor Force Participation in 35 years, but sown the seeds of an inevitable, catastrophic debt and currency collapse; equally ironically, 100 years to the date of its commencement.
In this case, the upcoming credit collapse will not be accompanied by the “usual money printing”; as that “ammo” was spent over the past five years. And thus, when the historic, rampant speculation that has characterized the past five years is undone, the most likely scenario will be government attempts to not only confiscate our wealth, but personal freedoms as well. This is why the time is now to “get out of the system”; as once the END GAME of currency collapse commences, it will be too late to prepare.
Before the FOMC announcement at 2:00 PM EST, I thought I’d do a bit of “housekeeping”; first off, by highlighting what we have stated about Bitcoin via myriad narratives in recent weeks. That is, that first and foremost, there is a world of difference between Bitcoin the investment, and Bitcoin the monetary platform. We have made no prediction as to where the former will eventually go; only that ultimately, it is a highly speculative investment that could just as easily “go bankrupt” as “make you rich.” As for the latter, the only way it will ever gain traction as an “alternative currency” will be after years of proving itself in the real economy. More importantly, for various reasons, such a trend will be fought “tooth and nail” by the world’s governments; and thus, “Bitcoin bulls” will likely be treated to the same decades worth of overt and covert suppression that gold and silver have been forced to endure – with the added caveat that Bitcoin has neither a track record, intrinsic value, nor theoretically, supply constraints.
Well guess what? In the past week alone, Bitcoin has come under attack by the governments of the U.S., the EU, Switzerland and now China; the latest being today’s news that the PBOC has banned investors on the world’s largest Bitcoin trading site – Bitcoin China – from paying in Yuan. Consequently, the price crashed overnight to $450, and sits around $550 as I write.
On to the topic of “bail-ins” – which we addressed yesterday in the article titled “The Inevitability, and Possible Imminence, of Bank Bail-Ins.” As it turns out, Senator Max Baucus has submitted a new tax reform bill instituting countless “retroactive taxes” on U.S. businesses, particularly those operating overseas. This is exactly what we mean when warning of the government attempting to steal your assets; and thus, once again, why it is imperative to “get out of the system” as quickly as possible.
As for what we wrote two days ago – in “How long can a (rigged) market trade below the cost of production”; the clear conclusion was that “tapering” or not, the Cartel has already destroyed the worldwide gold and silver production outlook for years to come. And thus, we recommend you take a look at Jeff Clark of Casey Research’s newest discussion of the upcoming PM supply crunch; which frankly, we couldn’t have said better ourselves!
Anyhow, as we head toward today’s “momentous” decision, it was reported that new mortgage applications plunged last week – by another 5.5%, from last week’s 13-year low. Comically, the National Association of Home Builders reported surging “sentiment” yesterday; which makes absolutely zero sense given plunging mortgage applications, surging interest rates, and a general rolling over of U.S. home prices. This morning, “housing starts” were up as well. However, as usual the devil is in the details; as most of the increase was due to “seasonal adjustments” and all the growth in multi-family units – as with home affordability at multi-decade lows, homebuilders are now speculating on the rental market. Of course, this will only cannibalize their single-family home business and put further pressure on home prices; as a glut of new homes, multi-family or otherwise, will only be compounded by rising rates; especially if the Fed is dumb enough to play “chicken” by announcing even a modest “tapering” this afternoon.
Remember, no matter what the Fed says, what it actually does – both overtly and covertly – will be entirely different. The Fed knows its $4 trillion, heavily leveraged balance sheet can’t handle even a modest increase in rates; nor can the U.S. housing industry, which currently accounts for half of GDP growth; nor the aforementioned, massively leveraged nation at large. Let alone, the entire world; as highlighted by today’s announcement of exploding Spanish bad loans. And by the way, if the Fed “tapers” QE by $10 billion/month, it will still be on course to print $900 billion in 2014 alone – bringing its year-end Treasury position to nearly half the entire supply!
When taking into account global money supply, Precious Metals have never been more inexpensive. Not to mention, the upcoming supply crunch, dwindling inventories and insatiable Eastern demand – which will only accelerate if the Cartel is dumb enough to push paper prices significantly below the current, historically depressed levels. And thus, on to today’s “momentous” decision.
Well, the verdict is in. Wow, I’m floored (again, facetious)! A whopping $10 billion monthly taper, starting in January; with “exceptionally low interest rates” anticipated until the jobless rate falls “well past 6.5%” – by the FOMC’s estimation, many years into the future. To wit, its “median estimate” for the Fed Funds rate is a whopping 0.75% by the end of 2015, and 1.75% by the end of 2016. You know, still a historically low level – three years from now. And yet again, don’t forget that America is rapidly “recovering!”
In other words, they’ll continue printing at a rate of $900 billion per year, and monetizing Treasuries and Mortgage-backed bonds at historic rates, barely below the previous level (see chart below). Moreover, since the “jobless rate” is clearly going to hit the initial “taper threshold” of 6.5% due solely to plunging Labor Participation, they simply lowered the bar.
And thus, what was initially intended to be the ‘end of QE by mid-2014’ will instead, more likely, be barely any change. Stocks are soaring (I told you the Fed would never impact the year-end bonuses of its Wall Street masters; bonds are slightly higher; and PMs are holding modest gains as of 2:15 AM EST – as regards the latter, following blatant intervention by government algorithms for the past 15 minutes. I mean gold surged $6 in the minute before the announcement; then, plunged $25 before the headlines could even be read; then surged anew, only to be met by the usual Cartel caps. As we prepare for Bennie’s press conference in 15 minutes, the Dow is up 125 points, gold $4 and silver $0.10 (to LOL, the Cartel’s current “line in the sand” of $20/oz.) – whilst the all-important ten year Treasury yield is 2.86%.
This is the first time I’ve ever listened to one of Bernanke’s post-FOMC press conferences; and thankfully, I’ve done so before lunch. In an exercise of flat-out cluelessness, self-aggrandizement, and disingenuousness, Bennie said essentially nothing incremental. Question after question grilled him of why the Fed has thus far failed to achieve its policy goals; as well as what it might do if the economy weakens anew, and what tools – if any – have not yet been utilized. In true “Greenspan-esque” fashion, he simply stated that the economy and inflation remain suboptimal; although in a rare, candid moment admitted he did not understanding why. And thus, the Fed will continue with highly accommodative monetary policy ad infinitum. How lucky for him; as against all odds, he will be likely to escape the Fed next month without the global financial system having collapsed on his watch.
Of all the misdirection’s, spin and outright lies averred, the most loathsome emerged when asked of the possibility of utilizing “other” policy tools; to which, unbelievably, he claimed the Fed has no authority to lend directly to institutions. Last I looked, the Fed was found to have covertly handed out $16 trillion of “secret loans” during the 2008-09 financial crisis, of which we are still not sure of the status of; and better yet, overtly lent countless trillions to European banks thereafter, care of the so-called “swap agreements” that weren’t technically considered loans because of their “alternative classification” as derivatives.
Actually, whilst editing this segment, he proffered several, even bigger lies – such as that the Fed is not losing money. Sure, it initially “profited” from its own asset purchases, by printing money to expand its own Ponzi scheme. However, now that interest rates are rising, the (massively leveraged) Fed is losing tens of billions – soon-to-be trillions – of dollars. Next up, an even bigger doozy; i.e., the Fed has been hampered in recent years by “unusually tight fiscal policy.” HUH? You mean, from the same Congress that has expanded deficits and debts exponentially; put off the “fiscal cliff”; for all intents and purposed eliminated the debt ceiling; and cancelling essentially ALL sequester cuts? And last but not least, when asked about the plunging Labor Participation Rate, he had the gall to claim it was principally due to “demographic” and “sociological” issues; to which, for once, I am speechless. Frankly, this man is as pathological a liar as they come (remember this and this and this and this.) And thus, it’s quite amazing how he is still even listened to; that is, aside from when he vehemently states the Fed’s intentions to continue printing money. Which is exactly what he spent the hour-long press conference doing – under the guise of a continually disappointing “recovery.”
FYI, whilst the press conference was ongoing, the Dow continued its typical post-FOMC rise; i.e., gradually rising with no volatility, despite interest rates rising to the day’s highs. Meanwhile, Cartel capping was so blatant, it was difficult not to laugh – or in my case, scream. The second Bennie started speaking at 2:30 PM EST, the Cartel went into action; ultimately, delivering the “coup de grace” as the call ended – after 60 minutes of relentless assurance of unfettered money printing. PMs were promptly bombed, whilst the Dow cruised to the day’s highs and the ten-year yield was “calmed.” In other words, while the initial reaction to the announcement was to buy stocks, bonds, and Precious Metals; the post-press conference “reaction” was to buy stocks, ignore bonds, and smash Precious Metals! By day’s end, gold was down $10/oz., and silver a measly $0.05/oz. – while the Dow, of course, was goosed 293 points, as the 10-year Treasury yield rose four basis points to 2.89%; albeit, dangerously close to its multi-year high.
In the end game, this was “par for the course” for an FOMC meeting; fittingly, with Paper PMs attacked while the Fed’s most destructive Chairman yet (note the word yet) gave his final press conference. Ultimately, the Fed did exactly what it always does; i.e., print money, promise to continue doing so, and give no specific timeline of its plans. Of course, when such plans are constantly couched as “data dependent,” it makes it quite easy to hide the fact that the Fed has not a clue what it’s doing; let alone, the horrific, global impact its actions are having.
As for the PM “markets,” the Cartel is playing a highly dangerous game of Russian Roulette, given how low physical inventories have gotten – particularly as gold and silver prices have now been pushed well below their respective costs of production. Clearly, I’m not “happy” about watching these criminals attack my life’s work; and in doing so, setting the stage for generations of poverty, unrest, and draconian government. However, my physical metal isn’t going anywhere; and ultimately, such attacks are only accelerating the global fiat Ponzi scheme’s inevitable demise. I’m certainly looking forward to seeing what COMEX registered inventories look like at month’s end; not to mention, just how aggressive global physical offtake is about to get!