We have been told time and again over the last 4 years that the Fed could “withdraw” their various QE programs in an orderly fashion. Over this time frame their balance sheet has quadrupled from $900 million to the current $4.1 trillion. The Fed announced a “taper” of $10 billion (from $85 billion) in Dec. and another $10 billion this month to $65 billion. So, at this point the Fed says they will only “juice” the markets by $780 billion versus over $1 trillion which means a year from now their balance sheet will be sniffing the nice round number of $5 trillion!
The result of the taper announcement has been havoc throughout the world’s stock and bond markets and in particular the currency markets. This being the result of merely cutting back the free money…not stopping it. Please keep in mind that even stopping QE altogether would NOT shrink their balance sheet and would not “withdraw” anything. “We” have told you all along and from the very beginning in 2009 that the Fed, once started down this path of QE could never slow, stop and surely not ever reverse the monetary injections…you are seeing proof of this right now with the very first tap on the brakes.
Each QE was larger than the last…why do you suppose this is? Each time a QE event ended the markets would throw a temper tantrum…and another, larger QE was announced…why do you suppose this is? But there is now a problem, the Fed has already gobbled up over 1/3rd of the Treasury market’s float…creating the problem of not enough collateral for the shadow banking system to lend against. The Fed has also taken onto their balance sheet over $1 trillion worth of mortgage loans…BAD mortgage loans. From whom you ask? Why the banks of course. Why did the banks want to sell these loans…to get them OFF THEIR BOOKS! Why not just sell them on the open market? “Because” is the standard answer. “Because,” these would fetch .80 cents on the dollar…or 60 cents…or even less than 50 cents?
So what’s so bad about that? Take your losses, lick your wounds and then go on down the road…right? Just a couple “mini” problems here, first, the equity in the entire banking system would be wiped out on a simple current earnings (losses) basis and secondly…they would have to mark down the rest of their portfolios to the market prices that these loans actually sold for and we can’t have that now can we? We can’t have that because …our banking system’s equity would be wiped out all over again…and then some for a “two fer!”
Meanwhile the world is in chaos when viewed through the currency markets. India, Brazil, Thailand, Russia, South Africa…and many others including Argentina have currencies that are in collapse (can you say “massive internal inflation?”). Speaking of Argentina, they had a little fire yesterday…a “convenient” one. 9 people died and it occurred where their “banking archives” were held. Last week JP Morgan (of all places) questioned Argentina’s accounting practices for their “reserves held” and made the case that the books were cooked. In question was some $10 billion of their supposed $28 billion in FOREX reserves (one half of a ham sandwich which would have been “TARPed” 5 years ago), but now we’ll never know will we since their “books” have truly been cooked…to a crisp!
“But now we’ll never know,” well, that’s not really true is it? Once the peso goes into total and complete collapse (it is already not accepted anywhere except within their own borders) we will know that they just didn’t have enough “Monopoly reserves” to keep playing the game. This is what the game is all about, the whole game. The whole game is everywhere on the planet and in ALL the markets. The “game” is now entirely about making it until tomorrow morning, stocks, bonds, currencies and yes, gold and silver (deliveries). As a side note, it has been speculated that we (the US) are actually promoting a currency crisis in order to create current demand for dollars; I tend to believe that this is so.
While on the subject of “markets,” I have one comment and one that you’ve heard from me before…”there are no markets.” Overnight the German stock market had a “glitch.” In less than one minute their market was down 200 points. Not at the open but in the middle of their day, this is an important difference. If this had happened on the open it could have been based on overnight news or whatever. This happened in the middle of a day (when Mario Draghi opened his mouth) and the market was actually closed for a few minutes. But guess what? When it opened back up…it did so almost unchanged! So…the 200 point drop didn’t happen? The market was not ever closed? Did CNBC ever report on it? Did they even know about it? Zero Hedge did and they have a great chart that’s a must see.
As usual I have a few questions. What do you suppose the German market might do when it is “discovered” that their gold (actual reserves) really is gone? Will they be able to reopen it a few minutes later with “no harm no foul?” Or how about the U.S. markets? Including the dollar itself? When a country “runs out of reserves” what happens? Argentina anyone? When we can no longer deliver gold to China, what do you suppose the extrapolation will be? That we …oh my gosh…”ran out of reserves?” Ya’ think? Oh yes that’s right, we don’t need no stinkin’ reserves because we are The United States of America. We don’t need any “reserves” because we ARE the reserve! We can create as much “reserves” as we’d like, whenever we’d like and we don’t need any “reserves for our reserve” (if that makes any sense).
We are collectively as a “globe” hanging on by a thread. A “thread” of confidence and nothing more. Bankers in mass suicide(d) mode, archives being toasted and markets doing some truly miraculous stuff…the “stuff” that confidence is made of, right?