I wrote on Wednesday “Crash Alert”, I should have titled it “Panic Alert”, which is exactly what the Fed did yesterday. Yesterday they announced “QE 3.5″(Fed Pulls Trigger, to Buy Mortgages in Effort to Lower Rates) where on top of Operation Twist and after QE1 and 2, they will purchase $40 billion per month of MBS (mortgage backed securities). I do want to mention that this is an outright confession that what they have done so far …has not worked, otherwise there would be no need for “more.” We, us peons, us sheep, were told (spun) all along things like “green shoots, recovery, sustainable recovery” etc., what have not heard because it is neither credible nor believable is the word “expansion” (growth). Yesterday the Fed admitted the failure of previous policy response.
The timing of this latest panicky policy response should tell you more than you need to know. We have an election coming up in less than 60 days, never, NEVER (other than 2008) has the Fed eased policy within 6 months of an election, this should tell you a lot! In fact, because the program is “open ended” (as in infinity as Jim Sinclair has said many times before), the Fed has gone “all in”. The $40 billion per month was not the key, the “open ended” part is because it illustrates that the oh so famous “exit strategy” talked about in 2009 and ’10 will never come. There is no turning back now.
Let me put this new $40 billion per month in perspective. $40 billion per month (which if you know government will only be expanded over time) equates to just under $500 billion annually. $500 billion is equal to 3% of GDP. $500 billion is more than the ALL of the “official” (supposed) Gold held by the U.S.. Do you see the irony here? This QE3.5 is just another plan in a long line of failed plans. It is just another plan, greater in size than our Treasury even claims to have in reserves (created and spent in less than 1 year)!
…And we are told of course that…”it is not inflationary”. Well of course it’s “not inflationary” because we all know that “inflation” is the number that the government spits out each month when they report CPI. It doesn’t matter that the stuff we need to buy each month to survive costs more, it doesn’t matter that the DEFINITION of inflation is when the money supply expands, “it’s not inflationary”, period, end of story because Ben Bernanke says so! I am sorry, this is pure, unadulterated inflation at it’s best because the “money” is being created out of thin air which does not exist until created. INFLATION is exactly what the Fed is striving so hard to create, except the things that they want to inflate are not being affected, just the stuff that the common man needs to survive on.
Here is the problem as I see it. The Fed has announced this BEFORE an election, …unprecedented. The Fed has announced this while the price of oil is already trading at $100. They announced this at a time when gasoline is at ALL TIME highs! They announced this AFTER corn, wheat and soybeans have had major rallies and are at or near ALL TIME HIGHS! They are implementing yet another inflationary plan while Gold (was) trading at $1,750 per ounce! The Dollar was ALREADY devalued versus Gold by some 75-80% since the turn of the century and some 50% JUST SINCE they started this lunacy back in 2008. They didn’t even wait for a 10% much less 5% drop in the stock market to implement this…they have PANICKED and done it publicly for all citizens of the planet to see!
One also must wonder how long it will be until we see Britain, Japan and Europe to follow the Fed’s lead? You must also wonder, what’s left? What’s left when, not if, the stock market starts to weaken and derivatives start moving further upside down? What do they do with this open ended, “non inflationary” plan? Do they just up the ante to $100 billion per month? $500 billion per month? Aw hell, why not $1 trillion per month?! The Fed is now playing in a winner take all (which means loser loses everything) poker game where their cards are all turned up and on the table. This is exactly what us “lunatics” have said all along and even before the Greatest Depression even started, the Fed will print until the cows come home and then some. They had no choice. They have no choice. They MUST print and they must print more, FOREVER, and at an ever higher and growing rate of speed and volume!
I stand by what I wrote Wednesday, “Crash Alert.” It is now only a matter of time before the greatest financial panic in all of history sets in. A panic where everything paper is jettisoned and anything real gobbled up. It is only a matter of time until the “great cash call” in the Gold market occurs where investors scream “send me my metal!” The old saying goes, “don’t fight the Fed” which in this case I agree with wholeheartedly. Follow the Fed and PANIC because that is exactly what they’ve just done! He who panics first, panics best!