Nearly five years ago we saw the beginnings of our current “QE” …and only now is the Fed saying that “at best” it has had only moderate effect on economic activity. Umm, isn’t this exactly what we (believers in common sense Austrian economics) said from the very beginning?
I wrote many times from July 2008 on what we had was a “solvency” problem not a “liquidity” problem. Yes, we did need liquidity injected to keep the system from collapsing in 2008 but the QE that followed was only kicking the can down the road and continuing a system that was broken. The various QE’s were only higher dosage drugs issued to the crack addicted system, it was exactly the same “drugs” (debt and unlimited fiat) that made the patient sick in the first place and landed it in the emergency ward.
So why exactly would the San Francisco Fed (Janet Yellen pres.) come out now with this revelation? Is it Janet Yellen jockeying for Fed Chairman position? Is it Janet Yellen trying to soften her “monetize the entire world” position so when Larry Summers becomes Chairman she still has at least “some” relevance? Has it been put forward to prepare the markets for “tapering?” Or…because it’s the truth?
First off, it is the truth. QE 1, 2, 3 and 3.5 have had virtually zero effect on the real economy, the only area that benefitted was the financial sector and anything associated with it. And yes, I do believe the Fed will at least try to taper because they are becoming too big of a factor in the “collateral” market. Their “attempt” at tapering may only last a few days as the amount of selling and unwinding’s will turn the leveraged system into a smoldering black hole very quickly. Tapering will then turn into another, bigger, different (not at all) and “better” QE in order to save the system…again.
I want to point out again that the Fed is on a dead end road with no exits and no choices. They must inflate and do so at ever greater rates or the entire system will collapse. “Inflate or die,” period, end of story…almost. I say “almost” because I believe that we have a chance (good chance) that the rest of the world fully understands where this whole thing stands and there are plans already in place to revalue gold higher and make currencies “ratio backed” to holdings. This…can set a path forward for the rest of the world in a currency system that is more fair and equitable.
As for the U.S., well, we either have the gold that we say we do or we do not. We will find out one way or the other and may God help us if we don’t (my opinion). If it turns out that the “gold is gone” then we face a hyperinflation of unimaginable terms that will correlate directly to the amount of debt that we have already issued. It will have to be paid back “somehow.” The “somehow” will be direct monetization and printing. Ordinary, daily and now taken for granted everyday goods will become scarce and priced maybe out of the reach of 90-95% of the population.
Think of it this way, for every year and every “dollar” that we have lived beyond our means in the past, we will be FORCED to live under our means in the future…until we have paid back the “debt.” Not the paper “debt” that we have already “borrowed,” no, the real debt owed to Mother Nature herself. We will need to produce more, consume less and actually “save” and invest capital for future production. In other words, we will need to restore the “seed corn” that we have been eating for all of these years.