Thursday, August 18, 2011

ZERO Fed Funds Rate Equals Undercover QE3

Economists see growing risk of global recession- AP

NO WAY!  Shocking revelation, that.

A funny thing happened in the stock market slaughter today.  Silver went up!

Recall during last weeks equity market carnage, Silver was savaged along with all the other "industrial commodities".  Today was different.  Has Silver begun to assert it's monetary status, following in Gold's footsteps?  Perhaps...

By Gene Arensberg, Got Gold Report
Combined COMEX commercial traders and Swap Dealer net buying in part responsible for $37 silver support.

HOUSTON – The CFTC commitments of traders (COT) report for last week showed that commercial traders covered or offset a considerable amount of their net short positioning in gold futures as we reported in these pages yesterday. The report also showed a similarly large ‘get-out’ by the commercial traders in silver, but that’s not the only thing analysts find interesting in the government reports covering the positioning of the largest metals futures traders.

As silver fell $3.25 or 8% Tuesday to Tuesday (the cutoff for COT data released each Friday), to close at $37.52 on the Cash Market, the collective net short positioning of the traders the CFTC classes as ‘commercial’ (LCNS) dropped by a very large 9,247 contracts or 20.7% from 44,588 to 35,341 contracts net short.

It is interesting to note that in the five reporting weeks from June 28 to August 2, as silver traveled from $33.91 to $40.77 (+$6.86 or 20.2%) the combined commercials, which include the Producer/Merchants and Swap Dealers, increased their net short bets on silver futures by 15,422 contracts, each covering the action of 5,000 ounces of silver metal. Thus, in the five weeks prior to this latest report, as silver rose just under $7, the Big Sellers of silver futures added about 77.1 million ounces worth of bets that would benefit if silver fell in price.

As we noted above, in the past reporting week, as silver gave back $3.25 or roughly half of the 5-week price advance, the combined commercials covered or offset contracts representing 46.2 million ounces or roughly 60% of what they put on net short for the period. For each $1.00 drop in the price of silver, the combined commercial traders covered or offset about 14.2 million ounces worth of futures contract net short exposure.

Swap Dealers were adding to their net long positioning in silver as they were covering their net shorts in gold.

Bottom line: The COMEX combined commercial futures traders strongly reduced their net short positioning for silver futures on that $3.25 drop in the price of silver and the Swap Dealers increased their long position significantly. Since then the price of silver has crawled its way back to almost where it was the prior Tuesday, so the commercials apparently had good instincts when they decided to get smaller on the short side with silver in the $37s. We can say that their short covering and the Swap Dealers long position taking helped to put the floor under silver in the $37s instead of a lower mark, can we not?

And can’t we then say that it looks like the largest, best funded and presumably the best informed traders of silver futures were positioning more for higher prices than lower prices as silver only dipped to the $37s? We certainly cannot say that the Big Sellers were even net sellers over the past week. They were net buyers instead.

Is the hand writing on the wall?  Has the enemy sought asylum in the Silver Bull's camp?  Time will tell...

...and what more could be said about Gold...  Blue Sky Baby!

As each day now passes, Gold asserts itself not only as the "currency of choice", but The Currency Of Last Resort!  Fiat = Debt, Gold = Freedom.

At 8PM est, Gold hits yet another new ALL-TIME high of $1836.

Another down day on Wall Street, and the cries for QE3 again grow louder, but fall on deaf ears.  There will be no "announced" Fed monetary support mechanism.  Everybody wants one...expects one to be announced at any time...and that is why there will not be one.  That side of the boat is too full:

From Zero Hedge, via Phoenix Capital Research
The primary reason the markets have held up since QE 2 ended was because the bulls believe QE 3 is coming soon. I myself believe this is true (that QE 3 is coming) but it’s going to take a lot more for it to arrive than most expect.

Why are so many pining away for QE3, when QE2 was such a dismal failure?  Other than propping up the banks, AND the stock markets, QE2 did little to "boost the economy", but it did a lot to boost stock and commodity prices.  And everybody should know by now that a rising stock market is hardly indicative of a strong and growing economy.  The Fed spent $900 Billion dollars on QE2 between November 2010 and June 2011 and got less than 1% GDP growth out of the economy in the first half of 2011.

Americans are brainwashed into believing that a strong stock market equals a strong economy...pure bullshit.  QE2, QE3, 4, 5, or doesn't matter, they are not intended to "boost the economy".  Quantitative Easing is intended solely to prop up the banks, increase asset prices, AND fund the ever growing debt of the USA.

What if I told you QE3 is here now, and in full swing as I type this, and you read it?  These Fed guys may seem dumb, but they ain't stupid.  In fact, they are down right sinister.  Bumbling Ben Bernanke's decision to keep the Federal Funds rate at 0% for the next two years is QE3 in disguise.

Many have wondered who the US Treasury would sell their new debt to, following the raising of the debt ceiling. 

"Why the Fed, of course.  They have bought 70% of the debt the USA has issued in the past year already."

That looks good on paper, but, one, it is politically unacceptable today, and two, their is reluctance among the Fed governors for the Fed to add to their billowing balance sheet by purchasing more US Treasury debt.  There will be no "announced" QE3, but there will be a backdoor purchase of the US Debt by the Fed...indirectly, QE3 "undercover".  It won't do much for the stock market, but it will go a long ways towards financing the USA's debt appetite...and inflating asset prices [except for real estate].

Sadly, the Undercover QE3 will be as ineffectual at boosting the economy as QE2 was.  Undercover QE3 will actually do more harm to the economy, than it will do any good.  With Undercover QE3, the Fed will print money, give it to the banks for free, they will increase their borrowed amount with leverage, and use the money to buy US Treasury debt that nobody else wants.  The potential for hyperinflation is exponential within Undercover QE3, AND the Fed further becomes the facilitator of a choking debt sure to bury America alive.

By: Peter Schiff
Moving past the previously uncertain pronouncements that they would “keep interest rates low for an extended period,” the Fed now tells us that rates will not budge from rock bottom for at least two years. Although the markets rallied on the news (at least for a few minutes) in reality the policy will inflict untold harm on the U.S. economy. The move was so dangerous and misguided that three members of the Fed’s Open Market Committee actually voted against it. This level of dissent within the Fed hasn’t been seen for years.

Many economists have short-sightedly concluded that ultra low interest rates are a sure fire way to spur economic growth. The easier and cheaper it is to borrow, they argue, the more likely business and consumers are to spend. And because spending spurs growth, in their calculation, low rates are always good. But, as is typical, they have it backwards.

It was bad enough that the Fed held rates far too low, but at least a fig leaf of uncertainty kept the most brazen speculators in partial paralysis. But by specifically telegraphing policy, the Fed has now given cover to the most parasitic elements of the financial sector to undertake transactions that offer no economic benefit to the nation. Specifically, it will simply encourage banks to borrow money at zero percent from the Fed, and then use significant leverage to buy low yielding treasuries at 2 to 4 percent. The result is a banker’s dream: guaranteed low risk profit. In other words it will encourage banks to lend to the government, which already borrows too much, and not lend to private borrowers, whose activity could actually benefit the economy.This reckless policy, designed to facilitate government spending and appease Wall Street financiers, will continue to starve Main Street of the capital it needs to make real productivity-enhancing investments. American investment capital will continue to flow abroad, denying local business the means to expand and hire. It also destroys interest rates paid to holders of bank savings deposits which traditionally had been a financial pillar of retirees. In addition, such an inflationary policy drives real wages lower, robbing Americans of their purchasing power. The consequence is a dollar in free-fall, dragging down with it the standard of living of average Americans.

Think about this for a moment.  The banks profit... at no risk ...borrowing FREE money from the Fed,  and purchasing US Treasury debt that nobody wants.  And all the while the Fed says they are keeping interest rates at ZERO in the hopes that this will "promote growth" in the economy? 

How dumb are Americans?  Guess who pays the 4% interest to the banks for their risk free profits by buying US Debt with FREE money?  American Tax Payers!  Outraged yet?  A 4% return on $1.5 TRILLION is $60 BILLION right out of the American taxpayers pocket.  Thanks Ben!

I wonder what goes through Ben Bernanke’s mind as he sits in his gold plated boardroom in the majestic Marriner Eccles building in Washington DC and decides to screw grandmothers in order to further enrich Wall Street bankers. He just pledged to keep interest rates at zero percent for two more years. Ben is a supposedly book smart man. Does he have no guilt or shame for what he has wrought? How does he sleep at night knowing he has created bloody revolutions around the globe due to his inflationary zero interest policy? People are dying because he has decided that an elite group of Wall Street bankers who recklessly brought down the worldwide financial system in 2008 deserve to be kept alive and enriched at the expense of the many.

He uses words like transitory to describe inflation. Even as the price of gold reveals his lies he continues to promote policies that will lead to the demise of the USD and our economic system. There is only one way to counter his lies – truth. With a corporate fascist government run by the few for the benefit of the few, telling the truth is treason as stated by Ron Paul:

“Truth is treason in the empire of lies.”

The storyline being sold to you by Bernanke, his Wall Street masters, and their captured puppets in Washington DC is that deflation is the great bogeyman they must slay. They make these statements from their ivory jewel encrusted towers as the real people in the real world deal with reality. The reality since Ben Bernanke announced his QE2 policyhis Wall Street masters, and their captured puppets in Washington DC is that deflation is the great bogeyman they must slay. They make these statements from their ivory jewel encrusted towers as the real people in the real world deal with reality. The reality since Ben Bernanke announced his QE2 policy in August 2010 is:

•Unleaded gas prices are up 45%.
•Heating oil prices are up 46%.
•Corn prices are up 71%.
•Soybean prices are up 26%.
•Rice prices are up 13%.
•Pork prices are up 31%.
•Beef prices are up 25%.
•Coffee prices are up 38%.
•Sugar prices are up 48%.
•Cotton prices are up 13%.
•Gold prices are up 42%.
•Silver prices are up 115%.
•Copper prices are up 23%.

These are the facts and they fly in the face of the lies being spouted by Bernanke and his Federal Reserve cronies. Words like transitory, quantitative easing, extended period, and liquidity are used by Professor Bernanke to obscure what he is doing to the average American.

"The official inflation rate is 3.6%, but anybody with an IQ above 70 knows that’s a statistical lie."  - Greg Hunter, USAWatchdog

According to economist John Williams of, the true annual inflation rate is around 11% (if calculated the way Bureau of Labor Statistics did it in 1980).   If you are a "saver", an interest rate of 2% [if you are lucky] will not protect your savings in an environment with 11% inflation.  In fact, your real return on your savings would be negative 9%.  You would lose $9 of purchasing power, for every $100 you had in savings.  I would consider that theft, wouldn't you?

The Precious Metals thrive in a negative interest rate environment:

By Andy Hoffman
RANTING ANDY – In all the hype around the early August Fed meeting, yet again the entire investment world (and clueless media, of course) completely misunderstood the RAMIFICATIONS of the policy statement. Let’s not get into the fact that the Fed prints VASTLY more money than it purports, sending trillions to insolvent banks and market manipulation activities each year, on a 24/7 basis, as well as to fraudulent offshore entities such as the “Caribbean banking centers” that mysteriously emerged in recent years as enormous U.S. Treasury bond buyers. Heck, we’re no longer in the “Sunday Night Special” phase of collapse, but frankly an “EVERY DAY AND NIGHT SPECIAL” phase, not just in the States but all of Europe, Japan, and nearly the entire FIAT-DISEASED WORLD.

Aside from the COVERT money-printing noted above, the Fed has an OVERT money-printing policy, which at this moment “the Street” erroneously believes engenders ONLY the reinvesting of interest payments into the Treasury market. However, what the Street does not understand is that maintaining the Fed Funds rate at 0% entails MASSIVE, DAILY PURCHASES OF TREASURY SECURITIES WITH FRESHLY PRINTED MONEY. This is “daily QE”, not to be confused with the “supplemental QE” involved with a $600 billion Treasury/MBS repurchase program, the latter of which was referred to as “QE2.”

But this “daily QE” is the essence of “QE to Infinity”, and thanks to the Fed’s INCREDIBLY MORONIC statement last week, is now GUARANTEED to occur for at least two more years (if the dollar lasts that long).

Stockman, who has long been a critic of the Fed's low interest rate policy, says it is "totally wrong." Stockman says "exceptionally low" interest rates have resulted in excessive speculation on Wall Street "that is utterly destroying our capital markets" and adding to the already unsustainable debt crisis. He goes on to say, "The fact is the Fed is the number one problem holding back this economy, punishing savers, savaging low income people trying to buy food, energy or fuel."

By Daniel Indiviglio
Its latest policy to keep interest rates near zero through mid-2013 could backfire and prevent home sales instead of encouraging them.

Basic economic theory says that when mortgage interest rates are low, consumers should feel more encouraged to buy a home. But right now, that intuitive theory might not hold. Kathleen Madigan at Real Time Economics proposes that the Federal Reserve's latest proclamation -- that short-term interest rates would be kept near zero through mid-2013 - might discourage home buying. Could this be possible?

This might seem like a backwards idea. To be sure, the last thing that the Fed would aim for is to make the housing market worse off. So why would it allow one of its policies to keep home sales artificially low? This might be an unfortunate and unintended consequence of its desire to calm the broader market.

The logic works here because home prices are declining. Nobody is sure how far they might fall or when they'll finally hit bottom. But we can feel fairly confident that prices aren't there yet. But what do we now know? Interest rates will be low for another two years. So why hurry to buy a home now?

Savvy potential home buyers who can wait the market out now have a good reason to do so. They don't have to worry about interest rates rising before the market bottoms. Instead, they can wait for the market to continue to decline. If it appears to bottom out in the next two years, then they can step in and finally buy at that time. But if prices keep declining over this period, then they'll be smart to buy in the first half of 2013, just before interest rates might begin rising. In the near-term, you might be better off waiting.

This actually makes a lot of sense. Prior to the Fed's August revelation, one of the best arguments for why it might make sense to buy a home in the near future was that interest rates will rise. As long as the Fed is holding them down, then this argument begins to disintegrate.

By Prashant Gopal
U.S. mortgage rates fell to the lowest in more than half a century as concern that the global economic recovery is faltering spurred demand for bonds that guide home loans, according to Freddie Mac.

The average rate for a 30-year fixed loan dropped to 4.15 percent in the week ended today from 4.32 percent, the McLean, Virginia-based mortgage financier said in a statement today. That was the lowest in more than 50 years, Freddie Mac said. The average 15-year rate fell to 3.36 percent from 3.5 percent.

“The low rates are doing absolutely nothing to stimulate the market for existing homes,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “It’s a combination of tight credit and weak demand coming from uncertainty and housing prices falling.”

The Fed's ZERO interest rate policy is destined to do more to hurt the US economy than to save it.  Yet the mainstream financial media are determined to sell the policy to us as "just what the doctor ordered" for the economy.  The economy would be in better hands if they were the hands Dr. Kevorkian.

Would you expect anything less from a financial media convinced that "Gold is in a bubble"?

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