(October 2012 – QE inflation Iceberg Dead Ahead)
Voltaire said in 1729: “All paper money eventually returns to its intrinsic value – ZERO.” WE were warned – almost 3 centuries ago. Bernanke announced QE3 on September 13, 2012 – the next step in the process of pushing the dollar down toward its intrinsic value. Not only is the Fed making a commitment to purchase $40 Billion per month of MBS (mortgage backed securities) from large banks with “newly printed money,” it is also making an open ended commitment – there is no end date. Ultimately this is highly inflationary for the American public and very beneficial for the banks holding what is often referred to as “toxic waste” (MBS) that can be dumped onto the Fed at full face value. Hopefully the bailouts to the banks will allow them to loan that newly created money into the economy so it benefits real people and “Main Street.” Regardless, we have been warned about the consequences of printing money and the resulting consumer price inflation.
QE3 looks like a desperate act to feed money to large banks, offload MBS toxic waste from their balance sheets, and devalue the dollar against houses, commodities, and other currencies. There will be significant collateral damage but apparently funneling money to the banks is more important.
It was inevitable that such action created an abundance of commentary. I have quoted a number of respected economists and critical thinkers on the subject of QE3. All links are listed at the end of this article.
Peter Schiff is a best-selling author and famous for calling the housing bubble when almost everyone thought he was an extremist and utterly wrong. History has proven he was correct then, and I believe he is correct now. He stated:
“In the meantime, the implications for American investors should be clear. The Fed will try to conjure a recovery on the backs of currency debasement. It will not stop or alter from this course. If the economy fails to respond to the drugs, Bernanke will simply up the dosage. In fact, he is so convinced we will remain dependent on quantitative easing that he explicitly said he won’t turn off the spigots even if things noticeably improve. In other words, the dollar is screwed.” (Operation Screw)
Daniel Amerman wrote regarding Bernanke, QE3, and the effort to devalue the dollar:
“This building crisis of a strengthening dollar and rising unemployment called for emergency action, and that is exactly what Bernanke is doing. He is effectively calling in a B-52 strike on the US dollar, monetizing for the world to see, and pledging to monetize for as long as it takes – until the US dollar is driven down to a level where American workers can once again be globally competitive.” (Unraveling Why A Fed President Just Suggested Doubling QE3)
Peter Schiff also wrote on Bernanke, QE3, and the necessity for a poor memory in the economics profession:
“Instead he explained how the new stimulus would be focused directly at the housing market through purchases of mortgage backed securities. He made clear that this strategy is intended to spark a surge in home prices that will in turn pull up the broader economy. Such a belief requires a dangerous amnesia to the events of the last decade. Despite the calamity that followed the bursting of our last housing bubble, economists feel this to be a wise strategy, proving that a poor memory is a prerequisite for the profession.” (The Fed Plays All Its Cards)
Steve Saville wrote regarding The Fed, QE3, and the potential for more QE in addition to the QE3 already promised:
“So, the Fed has done what we thought it would have enough sense not to do at this time. The US now has “QE3”. The Fed has said it will purchase $40B per month of mortgage-backed securities, indefinitely. This is being done to ‘put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.’ Interest rates are at generational lows, but the Fed believes that what the US economy really needs right now are lower interest rates…. The bottom line is that when this latest program doesn’t achieve the intended results, it won’t be perceived by the Fed as a failure of ‘monetary accommodation’. It will, instead, be perceived as a failure due to insufficient monetary accommodation and therefore as a reason for an even higher dose of the same bogus remedy. This process is likely to continue until price inflation is widely perceived as a major problem.” (Fed Up)
Charles Hugh Smith described The Fed as “The World’s Largest Money Laundering Machine.” He questioned the morality of QE3 and explored the real reason for QE3. He wrote:
“Once again we can start by asking why a nation’s Central Bank should buy mortgages from private financial institutions. Once again the first answer is a variation on the same theme: the Central Bank prints money and buys the mortgages as a way of socializing private losses and passing through billions of dollars in “free money” to private hands… Since the Fed can create unlimited money, why not pay off every mortgage in the land? That’s only $9.7 trillion, and if the Fed wanted to unleash an orgy of spending, that would certainly do it. Trillions in losses would be filled with “free money,” since the Fed would pay the full value of all mortgages.
This thought experiment reveals the real agenda of the Fed’s asset purchases: it’s not about aiding the nation or borrowers, it’s all about funneling “free money” to the banks to restore their balance sheets and profits.” (The World’s Largest Money-Laundering Machine: The Federal Reserve)
Peter Schiff further discussed QE3 and likened it to a runaway train rushing toward a brick wall. He concluded:
“Bernanke and his Wall Street supporters see cheap money until the horizon – but that horizon is really a painted brick wall. So it’s not QE-Infinity, it’s QE until the Fed either recognizes the brick wall and slams on the brakes, or doesn’t and crashes into it. Either way, the only way to get off this locomotive is to invest in hard assets.” (Riding Into The Sunset or a Brick Wall?)
William (Bill) H. Gross founded PIMCO, a huge bond investment fund that manages over $1 Trillion in assets and is highly respected in the financial community. Mr. Gross wrote in his October 2012 commentary (Damages) that he is afraid (my words) for the structure and integrity of the economy and the financial markets of the United States. He further stated that the United States is an addict “who frequently pleasures itself with budgetary crystal meth.” He is not optimistic about current monetary and fiscal policies and even advised purchasing gold as an alternative to bonds, the investment business that made him wealthy.
Steve Saville wrote further about bad economic theory in the form of QE3 and discussed the basic nature of The Fed. He said:
“We’ve speculated in TSI commentaries that unwavering devotion to bad economic theory (a type of stupidity) is the most likely reason for the Fed’s introduction of a new inflation program at this time. There are other plausible explanations, but in general terms it boils down to this: the Fed is either stupid, or evil, or stupid and evil. There is no fourth possibility that makes any sense. It is either evil enough to inflate the currency in an effort to help banks (or the re-election chances of Obama) even though it knows that doing so will harm the overall economy; or it is stupid enough to believe that the economy can be helped by creating money out of nothing and distorting the price signals upon which an efficient market relies; or it is evil enough and stupid enough to believe that it can transfer wealth to the banks and simultaneously create a net benefit for the overall economy. We’ll go with evil and stupid.” (The Fed is the great enabler)
Months before QE3 was announced, Congressman Ron Paul discussed the consequences of Fed actions and stated that expanding the money supply is the root cause of inflation: He stated:
“The American public now senses that the Fed’s actions, especially since 2008, are enormously inflationary and will cause great harm to the American economy in the long run. They are beginning to understand what so many economists still don’t understand, which is that inflation is a monetary phenomenon, and rising prices are merely a symptom of that phenomenon. Prices eventually rise when the supply of US dollars (paper or electronic) grows faster than the available goods and services being chased by those dollars.…The true evil of inflation is that newly created money benefits politically favored financial interests, especially banks, on the front end. Over time, however, the net result of monetary inflation is always the devaluation of savings and purchasing power. This devaluation discourages saving, which is the key to capital accumulation and investment in a healthy economy. Inflation also tends to hurt seniors and those living on fixed incomes the most.” (Inflation is a Monetary Phenomenon)
Deepcaster wrote regarding QE3 and how it would weaken the purchasing power of the dollar and hurt the middle class and their standard of living. He stated:
“This debauchery of the $US weakens its purchasing power and thus increases burdens on the agonized disappearing middle class.
The Bernanke claim that buying $40 billion per month in mortgage backed securities would stimulate the economy and help the housing market is just a fictitious cover story. In fact, it is just another gift to the Mega-Banks who hold underwater paper, and to Wall Street which proceeded to rally on a Fed-sugared high. And, of course, it is a pre-election gift to President Obama.
Important Consequences will ensue.” (Golden Numbers, Ersatz Numbers & Profit Nuggets)
We have been warned! QE3 is now pumping newly created dollars into the large banks. Expect the US money supply to dramatically increase as a consequence of QE3 and yet-to-be announced additional stimulus (printing money – injecting liquidity into the financial system). Expect increased consumer price inflation and a declining standard of living for the middle class of the United States. The banks will benefit, but many others will suffer. An economic recession seems inevitable, another financial crash seems likely, and the social unrest we see in Greece, Spain, and Italy may visit the United States as soon as the next congressional election.
The government will “do something,” and it will not help the middle class! Perhaps QE4 on steroids will be next.
Read the first article in this series for additional information on the inevitability of more “money printing” and its effects: “We Have Been Warned!”
There is still time to buy gold and silver to protect your assets before the dollar declines further. If you are skeptical of the trend, examine the exponential rise in gold, and the exponential rise in silver. With QE3 officially announced and huge US government budget deficits projected for the foreseeable future, the long-term uptrend in gold and silver, for at least several more years, is now assured.
There is still time to buy gold and silver. We have been warned!
Below are links to ten articles written by a number of respected economists and critical thinkers on the subject of QE3:
- Operation Screw
- Unraveling Why A Fed President Just Suggested Doubling QE3
- The Fed Plays All Its Cards
- Fed Up
- The World’s Largest Money-Laundering Machine: The Federal Reserve
- Riding Into The Sunset or a Brick Wall?
- The Fed is the great enabler
- Inflation is a Monetary Phenomenon
- Golden Numbers, Ersatz Numbers & Profit Nuggets
aka Deviant Investor
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