We all know what will happen to the markets and commodities if the fed announces that they will end QE2 at the end of june. Don't be fooled. As for me, this interview with Jim Rickards is probably the most important pieces of information i've come across on how NOT to be shaken out of my holdings in precious metals when they announce the end of QE2.
Summary from my perspective, you'll get the cringe before the binge. There aren't enough longs smart enough to figure expansion doesn't mean expanding the Fed's book, if it is already printed so much, the turnover constitutes a QE into infinity.
Lemmings will bolt on the issue of no more QE--because the Fed won't say "because we have 3/4 TRILLION cash flow in perpetuity from the turnover of the 3TRILLION we've already printed."
They're hiding inflation to infinity by pointing to only one part of the equation.
At first therefore, around Wednesday, you'll get the cringe before everyone figures out the binge.
Assuming the article discussed above is accurate, the key question, in my view, is whether this further purchase of US Treasury debt by the Fed amounts to further debasement of the US Dollar? If the Fed is using principal and/or interest payments from the mortgates it holds to purchase additional US debt, this money is already in existence is it not? And, therefore, money already existing in the Feds account is merely being transferred to the US Treasury to support the annual budget. It is not clear to me that this amounts to further debasement of the currency. Basically the Fed has become a large commercial bank that can reinvest the principal and interest payments it receives.
Rickards analysis of the fed is quite both good, quite concerning and to the point....it chillingly reminds one of:
"What is one to do, when in order to rule men, it is necessary to deceive them? For almost invariably the more simple, the more silly. and the more gross the phenomenon, the more likely is it to succeed."
(Madame Helena Petrovna Blasvatsky-Russian cult leader of the new world order)
much along the same lines as some of our current leaders that follow the Alinsky order of: "never let a good crisis go by without capitalizing on it."
The question remains though, how will the mkt react on mar 15th? Jpm is betting on a major generic pullback, so what do we small frys do? sit back and watch things go down, wait for some reversal type thinking and understanding to settle in and stk rebound, ignore this altogether, or play the game along with jpm?
I believe you are right nomo - From what I gather in Jim Rickards interview is QE 2 will end in June and will be announced as such in the Fed. meeting March 15th. It is actually a smokescreen because QE will become perpetual with the rollover of 750 billion in principal from QE1 &QE2. Here is a good summation:
As we approach the end of the Fed’s quantitative easing program many are prepared to shout, “QE is dead!” Few realize the old royal salute is more appropriate – “QE is dead, long live QE!” Because an heir to the throne is here and will be with us for a long time. QE has now become a permanent part of the financial landscape of the United States.
The reason is that the size of the Fed’s balance sheet is now so vast that the reinvestment of principal payments from the existing assets will be enough to monetize a large portion of the Federal deficit without having to increase the total size of the balance sheet. The Fed’s balance sheet is to the bond market as Thomas Hobbes’ Leviathan was to society – a monarch beyond the capacity of its subjects to change. Apart from the obfuscation of words like “stocks and flows” coming from Brian Sack at the New York Fed and Ben Bernanke, there’s nothing hidden going on, it’s just a matter of math. The key fact is that while the Fed will not expand the balance sheet, they will not let it shrink either. Keeping the balance sheet unchanged means reinvesting the entire maturing principal on the existing assets. And when the assets are big enough, that reinvestment becomes enormous. This is what is behind the talk of “stocks and flows.” When the stock is large enough, it is the flow.
The criticism of QE2 has been intense from Republican circles, Tea Party adherents and international trading partners such as China, South Korea, Brazil and others who are suffering the effects of inflation caused by QE generally. The Fed may have pushed this program to the limit. For political reasons, more so than economic, the Fed will end QE2 in June and will make its intentions known. But is this the end of QE? The answer is no.
$1.6 Trillion seems like a reasonable estimate of the amount of Treasury notes and bonds the Fed will own on June 30, 2011.
i've said multiple times: i don't care what they call it, the government is in too deep. any true unplug of paper would send the economy under. Spending is still out of uncontrol and unsustainable and still no real action regarding entitlements which will slowly drain the us.
the government pushed all their chips to the middle of the table. ths problem is the ball on the roulette table is just going to keep on spinning because the only true number that our budget is at starts with a negative in front of it.