Lots of Choices. All of Them Bad.
You know, in a way, I kind of feel sorry for The Bernank. As a central-planning plutocrat, the poor guy has put himself into a very tough position. He chairs the Federal Reserve as we stand at the end of the Great Keynesian Experiment. Bummer for him. Lots of choices. All of them bad.
Since everyone-and-their-brother is going to try to analyze the Fed's actions, I figured I'd take a stab at it, too. My challenge is: How do I convey all of this in a format that is understandable? I mean, I could verbalize it to you like I did for Hyde earlier today but this format is about the written word, not me talking. So, I'm going to fall back upon the technique that I've defaulted to in the past...chronology, sort of.
1) The Bernank knows that the gluttonous blob that is the U.S. federal government needs money.
2) At this moment, it is politically untenable to launch another overt QE program.
3) Even within his own "board of governors" there is dissent against additional QE.
4) However, see #1.
5) The Bernank is a smart guy and a historian, though, so he pulls from the history books a program by which The Fed will sell some of its short-term government bonds and use the proceeds to buy long-term bonds.
6) The problem with this is that it will flatten, or even invert, the yield curve.
7) Uh-oh. Dat no good. If you invert the yield curve, you will only accelerate the economic collapse. Tax revenues will plummet further and you will exacerbate your primary issue #1.
8) A flat yield curve will also crush the earnings of banks who profit from the "carry trade" of borrowing short and lending long. Concern over future bank earnings will only serve to frighten even more global investors to abandon equities in search of "safe havens".
9) But you're The Bernank, you have a solution.
10) The safe haven of U.S. government debt. Not long-term. Who, in their right mind (besides The Fed) would want to buy long-term U.S. government debt? No, if you can create enough panic, buyers will emerge for short-term U.S. government debt.
11) In fact, if you can create enough panic, you might even find buyers for the entire $400B in short-term U.S. government bills and notes that you are trying to sell.
12) If you can create this artificial demand, you can sell your $400B without causing a substantial rise in short-term rates. You won't even come close to inverting the yield curve. You'll just simply flatten it out a little.
13) With a flat yield curve, maybe those rascally banks will be persuaded into more commercial and residential lending instead of sitting on their fat behinds and buying treasuries.
14) Regardless, by early 2012, with the Dow below 10,000, those good-for-nothing, back-stabbing politicians will be screaming and begging for more QE.
15) Even your buddies like the goon, KosherDakota, will sign on to your next QE program.
16) This might work, you think to yourself. It just might work.
Don't count on it, Ben. You're not that smart. You just choked out whatever life was left in the U.S. economy. The only chance you Keynesians had at survival was by getting economic growth to explode and produce the tax revenues needed to fund The Beast. By flattening the yield curve, you just out-smarted yourself and accelerated your demise.
Do not despair, my Turdites. Though the PMs will continue to fluctuate in price, the trend will continue higher. Much higher. Physical metal is your only protection from the calamity that is now much closer than it was 24 hours ago.
In the meantime, the short-term charts have certainly not improved. As discussed last evening, unless gold could convincingly move through 1815, the trend was still lower. At some point it will break above that nasty downtrend line but we're going to have to be patient.
OK, that's all for today. Let's see what tomorrow brings. TF