The FOMC minutes were released yesterday and said that several participants thought that pulling the punchbowl at some point would be necessary. Fat chance! No, NO CHANCE! There is no chance now just as there was no chance back in 2009 and ’10 with all of the talk of “green shoots and exit plans.” Forget about anything and everything else. If the Fed steps back then WHO will buy the Treasury’s bonds? Anyone have an answer for this one? Anyone? Bueller?
No, this is a complete laugher. Look at it this way: if the Fed were to stop or even slow asset (bond) purchases then interest rates will rise. The Treasury continues to “roll” old debt into new debt because it’s not like they have the “money” to retire or pay down anything. This is like adding more balance every single month to your credit card without ever having the intention OR ability to pay one red cent of principal back… EVER! With $16 trillion of debt (on books), every 1% rise in interest rates will cost another $160 billion in interest alone. For example a 5% rise would cost $800 billion per year in additional interest EVERY year, I might add that each 1% rise in rates broken down will cost close to $500 million PER DAY.
None of the above even takes into consideration the $1+++ trillion of new debt that is being piled on each year. This additional debt is the only reason that the “doors” have remained open. Without it everything will come to a complete screeching halt which is what makes the current sell off in precious metals laughable. They are “going down” because why? The Fed and Treasury had a “come to Jesus” moment and austerity will cover the land? Can you imagine the riots that will occur? Pensions slashed, overpaid government workers losing their jobs only to go on unemployment (which will be cut back because there is no money) and EBT benefits etc. slashed? Austerity? Living within our means? Someone other than the Fed ponying up over $1 trillion per year in new lending to a bankrupt Treasury? Come on!
While we are on the subject of “austerity”, you might as well add the word deflation which is exactly what we would have if we had a REAL currency… but… we don’t. “Money” becomes more valuable in a deflation because there is “less of it,” however, we have an added twist to the situation today. The “issuer” of the money IS the problem and they are walking talking bankrupt. Assuming that the idiots who prance around the halls of the Fed were stupid enough to believe the economy can survive on its own without further and infinite QE (they don’t, they know that within weeks or even just days the house will collapse) the result would be a bankruptcy of the Treasury. …Which means the Dollar becomes worth less (read worthless) NOT more! Do you see the irony here? Continued monetization means a steadily weaker Dollar while austerity means the same thing… only faster, much faster, probably over weeks ending in a weekend where nothing reopens Monday morning. The only thing which will display “deflation” is real money, gold and silver. There is precious little of it now, wait until it goes into hiding where no one will part with it except for the most necessary items. Now THAT’S going to be one hell of a “deflation” which history will call hyperinflation!
On another subject, I played golf today and one of the “chaps” (a Brit) asked me, “If you are correct about a financial collapse, what good is gold or silver going to be? Wouldn’t you be better off stocking up on baked beans and toilet paper?” First off, if you can store your net worth in a closet that consists of food for say 2 or 3 years, you wouldn’t be able to purchase very much silver, certainly not gold ounces. I explained to him that “a plan” is what he needed. Yes, you need food, toilet paper and supplies. You need arms to protect yourself, your family and your belongings but “something” has to be money. Why not “real money,” you know, the stuff that has been money for 5,000 years? Makes sense to me, why not “store” your savings in money, money that can never default under any circumstances. And what gets me is that those who cannot understand that a crisis is coming (because it is just too horrible to believe I suppose) is that very few can see that there is “the other side.” Whatever crisis which is coming will surely have an end and a new beginning comes somewhere somehow at some point. I ask you, if everything financial collapses how will you get your net worth from “here to there?” I bet you can figure this one out with your 3rd grade thinking cap on. How so many don’t or “can’t”, or maybe just don’t want to “get it” is beyond me.