Additional Covert QE On The Way?

An alert Turdite sent me an email last evening where he connected some dots about additional quantitative easing. I've been thinking about it off and on today and I've concluded that it deserves a discussion here.

Before we get started and, as background, please take a few minutes to watch this video:

The email that Turdite "David" sent me last night included this post from a message board at market-ticker.org. A poster named "throxx" said this:

"IMHO, QE3 is presently being implemented via the Chartering of NEW Bank Holding Companies in the United States which will utilize Chinese held U.S. Treasuries as their BASE Capital.
-The Chinese held US Treasuries will be utilized as BASE CAPITAL upon which to create TRILLIONS of digital FRN via fractional reserve.
While these Treasuries were held outside of the U.S. Banking System FRN could not be created via fractional reserve; -but, now these Treasuries WILL be used as a basis to generate digital FRN out of thin air.
IF China holds $1.2 Trillion of U.S. Treasuries....
...THEN $1.2 Trillion in U.S. Treasuries = the possible creation of $10.8 Trillion new digital FRN via fractional reserve banking.
Sounds kinda like a money printing scheme doesn't it?
-NO 'Dollar of Capital' rule as Our Host would say...
Sounds a tad inflationary doesn't it?
THIS is exactly how the U.S. Banks Counterfeited FRN and ramped up inflation during the housing bubble.
-It is going to be done again with the help of the Chinese.
The Chinese ARE NOT going to 'dump' their Treasuries: the Chinese are going to print Trillions of digital FRN and go on an unprecedented .GOV/FED sponsored Leveraged Domestic Buying Binge!"

This rather interesting idea seems to have been generated by this little-noticed story from last week.

http://www.thedeal.com/content/regulatory/fed-allows-china-wealth-fund-to-buy-us-bank.php

The banks in question are: (from the article)

  • China Investment Corp., or CIC, and other Chinese entities were permitted to acquire an 80% stake in New York's Bank of East Asia (U.S.A.) NA. CIC manages a portion of China's huge foreign exchange reserves.
  • Separately Wednesday, the Fed also allowed the Agricultural Bank of China Ltd. to establish a branch in New York and the Bank of China Ltd. to have a branch in Chicago.

Now, for those of you unfamiliar with fractional reserve banking, I suggest you watch this:

So here's the question for you to ponder: With everyone expecting/hoping for overt QE3 by June or July or November, what if the more politically palpable covert QE continues, instead? And if covert QE continues, will the price of paper metal continue to decline through the balance of this year and maybe even beyond?

Having answered those questions, now ask yourself: Does it even matter? If the "market" chooses to ignore covert QE, will you? Are you going to convert your metal back into fiat or will you simply buy more at "sale" prices? Does this chart help?

Whether it's overt or covert QE, growth of the money supply equals growth of debt and vice versa. And, as you can plainly see on this chart, rising debt causes equally rising gold prices.

Put it all together and what do ya do? BTFD and keep stacking.

TF

 

295 Comments

bellyacre's picture

FIRST AGAIN

FIRST

Halo's picture

Jim and hedging

Battle Beagle's picture

Backwardation in Gold And Silver

Backwardation in Gold And Silver

See Link For More:

http://www.silverseek.com/article/backwardation-gold-and-silver

 

On Monday, May 14, something happened that hasn’t happened since Dec of 2008.Two successive near-month precious metals futures contracts were in backwardation at the same time. To oversimplify, backwardation is when the price of a futures contract is lower than the price in the spot market. It should not be possible for it to happen in gold and silver (see my piecehttp://keithweiner.posterous.com/when-gold-backwardation-becomes-permanent).

But ever since Dec 2008, it has been recurring intermittently, and recently it has become the “new normal” for each futures contract to head into backwardation before expiring (see http://keithweiner.posterous.com/temporary-backwardation-the-path-forward-from).

Big L's picture

Was there ever any doubt?

I mean really? It's the ONLY option.

and.....

GIRLS RULE!

StevenBHorse's picture

Interesting

I believe that the treasuries held by China are held in custody by the Fed.  Rickards detailed this fact in his recent book.  For those of you unfamiliar with the book, Rickards participated in a DoD exercise wherein they ran a simulated financial war games.  One option was China liquidating their treasury stack, but since they are held in custody at the Fed, they (Fed) would simply not allow the Chinese to do this.  

So how exactly would that work in practice.  The whole premise falls apart if the banks don't physically or digitally in this case hold the treasuries in their own balance sheet.

Glad to see you are contributing BellyAcre......my fatwah against the 1st's started with you, but has now grown to 50 people on my ignore list. 

recaptureamerica's picture

Stevenbhorse

Lol. 50 people on ignore? It's going to get lonely in Turdville.

A town of one doesn't a Turdville, make.

Maybe you won't read this. I was first once.

Exergy's picture

Genius

Nice Chess move ...

Take your crappy US paper (sorry... Tier 1 assets) and create banks inside the offending economy and use the very fractional reserve system to INSTANTLY let you leverage the value of those assets 10 times so you can instantly BUY hard assets including PM's, Land and companies...and anything you like ...the whole while laughing as the very process of buying these assets drives UP these hard asset's prices further increasing the value of the assets you are leveraging...which allows u to buy more.  It also leaves you OWNING hard assets at 10 cents on the dollar.  So long as you don't ask to be a primary dealer...you end up being one of largest banks in the world based on capitol that you own....and all that is before you leverage those FRN's ...so you basically can buy US paper for free to seem like nice guys offering a helping hand.  If you are smart enough to do this...me thinks they are not going to just buy whatever the US fed "suggests".

End game...the servant is now the master

The East is going to BUY the west.

Genius

(stack baby stack!!!...this is from a country that WANTS it's citizens to own PM's and they are only just starting to buy!)

StevenBHorse's picture

You are on my list ...but since you addressed me personally

I did read your response.  I was hoping to get a thought about the content of my post, not my poking at bellyacre.  But alas, you didn't disappoint. 

My being a supreme dickhead should not be open for discussion, it's just something that you have to live with.  

boatman's picture

KEGGER

take your IRA move it to TDAmeritrade or Schwab or somebody.

then buy what paper[sprott?] u want if/til things get shakier.

then/if cash it in, pay the tax, buy phys.

course u can just cash it in, tax it, n buy the phys.

i'm not there yet on the total collapse deal, tho its highly possible.

BUT THATS JUST MHO.

tyberious's picture

Repost

Our SLV Option Puts that we suggested are now UP 270% in the past 10 Trading Days!!!

 
We rarely do 'Put Option' suggestions, but when we do our record is one of the best. However, always keep in mind that options are a bet and should be treated as such.
 
With silver now holding at $27 per ounce, we are completely closed out of our SLV Puts and just purchased several hundred physical ounces of silver this morning.
 
Now we are NOT suggesting trading silver in the short term, silver can easily fall through the floor from these levels especially if we go below $26. $26 is silver's last line of defense. IF we have a sharp move down, then all bets are off because silver's next stop would likely be $22 and after that $17 if we enter some type of deflationary shock.
 
WE ARE NOT saying this is what is going to happen, but we want to be brutally honest with you and give you the heads up that if we see some type of 'black swan' event that puts fear into the market, then we could see things get a lot worse for silver in 2012.
 
Why we are buying physical? Because we save in silver, we believe silver will absolutely be the best investment of the decade, so for the long term, this price level is nothing. When silver is trading near the $1,000 per ounce range, if not higher, people will regret fretting about an $8 swing in the silver market at the mid $20 level.
 
When it comes to getting physical metal at these prices, you just never know when it is going to end, silver shortages loom as the price declines. The recent mines have a higher cost of production, many of them over $20 per ounce, and we are on the edge of a dollar crisis.
 
What we are doing right now?
 
Researching. We are looking for strong companies that are good for both short term traders and long term investors. With commodities down, we are looking for some buying ideas to present to our members.
 
We hope everyone is ready because we have some potentially big winners coming soon. The downturn of the last few weeks has shaken out the weak hands, so those looking for good deals, NOW may be the time!
 
Just an FYI, one of the companies we are looking at looks like it could be a big mover once resource investors discover it. We are watching it closely and hope to bring it to you as soon as we can.
 
Mike Krieger's Post on silver, great read for those looking for more on silver's recent move.
 
Click here to read, "Silver Plunges Below Marginal Cost: Commentary from a Retired Geologist."
 
 
 
SilverWealth's picture

Armstrong

I have to side with Martin Armstrong. He has pegged this year well. His understanding is that flight to quality out of Europe will not run to gold, first it goes to the Dollar. This is the historic trend. We are in the dollar phase and it is rallying unfortunately. We are seeing that as Europe falls apart there is a deflationary flight to safety out of risk assets and into the dollar. Gold is perceived as a risk asset in this enviroment. This perception will change but not yet, not yet.

Patience will be necessary while this domino collapse plays out. Armstrong has a timing cycle where either gold rallies soon into July and then crashes down in August - September or it continues down from here and then rallies in his time cycle of July and then crashes later in 12'.

The whole thing is a fucking drag I know. We all know that the dollar is toilet paper. But perception is all and one must wait until the perception of the dollar as safe haven sours Then the big gold rally comes and I don't think before.

A55H0LE_Lawyer's picture

12-year old prodigy, my b---

So some 12-year old Canadian kid is programmed by her parents to spout a bit about central banks.  She opposes them, the public cheers!

But what is her solution?   Basically, put the governments directly in charge of the printing press.  Ooh, that's a great idea.  Does nobody see how our efforts are being hijacked???

The problem with our economy is easy money creation.  Her "solution" just throws gasoline on the fire.  The real solution is to anchor our economies with something politicians and bankers cannot create out of thin air.  And what could that be ...???

foggyroad's picture

TF excellent videos!

Now, We all see the fractional reserve notes creation process and it's exponential nature of increasing the money supply.

Now, consider the compound interest attached to all the loans that went into this vast pile of debt money created.

Boggles the mind!.. rule of thumb, $ 100,000.oo mortgage on a house costs between 2 or 3 times the original principal ie. $300,00000 to $400,000.oo total payout of principal and interest to clear title of said house.

Who is this money paid to?

Hmmn.

Turd Ferguson's picture

This is brand new

MODERATOR

and you should probably watch it, too.

silverstax's picture

Re: 12-year old prodigy

She may very well be a mouthpiece for her folks but her video is helping to wake people up nonetheless! It's gone viral and I know of a couple of people personally who were previously asleep and are now starting to question things after being forwarded that video.

Turd, maybe it's time for you to get one of your kids to make a proper video on JPM and the Federal Reserve - you know we'd make it viral in no time! cheeky

foggyroad's picture

SilverWealth

Agreed Your Premise, well Martin's and Your's usd safe haven flight, however all it would take is for one Big fish to jump in and start a stampede to gold.

MOPE is just that Perception, if the perception is that The Smart Money is sniffing around Gold, it wouldn't take a whale to vaporize the current Mope, due to the small size of the PM market.

Jim Willie ruminated on New currencies  backed partially by gold, as this becomes more probable, flight desinations may change.

Imo

twippers's picture

Gold and Silver Stocks

Many of the larger gld and silver stocks finished in the green today even with the plunge in G and S. Harvey Organ usually says this is a precursor to a run up the next day.  Can someone enlighten?

Big Buffalo's picture

Debt to Gold Ratio chart

Does anyone have a chart very similar to Turd's posted chart except, for every $100 gold would equal $1,000,000,000 debt?

I believe this would provide us a better tracking method.

In the meantime, I like this chart too. It's very realistic.

¤'s picture

K.I.S.S.

I'll try to do so.  Thanks for the new reading materialyes

As usual, you're on top of an aspect of this I didn't want to mention aloud because it sounds so unlikely. I actually think that there is a high likelihood that even if they announce QE publicly that the effect won't be as great on the PM's as we think or as sustained. Unless the QE number is so mind boggling and it comes on the heels of some other market events, I think they have the skids prepped to such a  degree that the momo money that seemed poised to get in earlier in the year might be spooked by what they've seen in gold/silver the past two months or so.

Unannounced QE like you're talking about would be the perfect 'stealth QE' that they've already telegraphed. They've actually stated their intention and used the words 'stealth QE' if I'm not mistaken. We're in uncharted and historical currency market territory here and there have been many curve balls thrown the public's way (market reaction wise)  so something like the next QE not having the same effect seems likely at some point.  I hope I'm wrong and the PM's go beserk and I'm leaning towards (and hoping) they do just that. 

We live in an upside down, topsy-turvy world where logical outcomes based on recent and previous experience don't seem very predictable or likely any longer.

I hope I'm wrong about all of that but what it comes down to me is the recognition that we are in a very real and ongoing currency war  or  'severe rebalancing for competitive monetary advantage battle' might be the more precise way of putting it. I see anything as possible, including a market under-reaction that they've tried real hard to create even though an unprecedented amount of gold has been bought by sovereign CB's and other big entities.  If that much gold can be taken off the market and the price isn't really reacting to supply and demand parameters then anything is possible.

Up is down. Left is right. Yes is no.

QE might be Z'zz to a certain degree, unless it's huge and accompanied by big turmoil elsewhere.  (U.S. downgrade after debt ceiling breach)

foggyroad's picture

@twippers

The cartel has signals to insiders, as to what direction PMs will be manipulated. Miner's leading spot down signals a forth coming raid and vice versa. Not always but statistically so, a headfake is always possible. Devious bunch these Bullion Banks!

ReachWest's picture

Time for an Aspirin

So - if I read this correctly - QE to infinity - but in an obfuscated fashion, so as not to alarm the markets and the populace. Thus the PM's will continue to be hammered (at least in the paper market) and "John Q Public" will be none the wiser until he finally notices a dozen eggs are costing $25.

Sounds like a plan that I would go along with if I were a Federal Reserve FOMC participant. And - hey, for the Chinese - it is brilliant. They get to have their cake and eat it too. (Essentially converting their worthless fiat to hard assets).

Only one problem (well - there are numerous problems, but) - we're all screwed even more. QE is bad enough - obfuscated QE is much worse. Oh - and how is that oh-so-quiet MENA problem these days? Lest we forget that small annoyance.

Now I really do feel a headache coming on. 

The Doc's picture

TF, you may be right about

TF, you may be right about JPM F'ing a client with a margin call causing today's waterfalls.  As I watched them happen my first thought was insider trading prior to the fed minutes release, and I am still inclined to think that was the intention, margin call or not, particularly as the fed allowed some easing language to magically escape in the minutes.
As you said, either option is obviously criminal...not sure which one is moreso. 

Supply of silver especially is beginning to tighten up somewhat, our suppliers for SD Bullion have begun raising premiums multiple times throughout the day, although only slightly so far... .05 to .10 at a time.

Sentiment is screaming a bottom, I have stackers asking how to short silver.  Could we see more weakness? Sure, particularly if JP is attempting to completely extricate itself from its remaining 13,000 silver shorts, as Ted Butler believes.   All I know is this is the best stacking opp since 2008. 
Keep up the good work.

-Doc

Santa's Elf's picture

@ IndigoStar7

I agree wholeheartedly with your assertion.  In my mind QE3 won't necessarily reflect an instant jolt upward to the price of gold.  However, what it will do is act as a manifestation of the Fed's glaring impotence in controlling deflation with any other mechanism.  

Now, if the FOMC meeting on June 20th passes sans QE3, then I think we may find ourselves reliving the last 2 weeks all over again.  Fact is, unless we have some central bank intervention, I think it's quite possible gold (perceived as risk asset) reaches Martin Armstrong levels ($1300ish).

Save your pennies, just in case.  

Full disclosure:  I bought today...shows how much I care about that theory wink

Dr G's picture

The stealth QE that Turd

The stealth QE that Turd mentions may indeed be occurring right now. While it may give the system liquidity, it will not have the necessary effects of moving markets (including the metals markets that we love so much).

Only formal and announced QE will do that. It has to come from Ben and he has to say "quantitative easing". Failure to do that will not result in happy days for PM owners desiring a higher price.

The other option is what ReachWest above mentions. That is actually an option I favor. We experience inflation while PM prices are initially very low. This helps to confirm hyperinflation around the bend AND gives us a chance to prep with metals at lower prices. It certainly does not help with prepping other items, as they will see a dramatic increase in cost.

bernard's picture

Innundated with Fiat Oblivion

It is getting hard to see through this dense fog of fiat deceoption...what is up? what is down?

http://silverliberationarmy.com

kingboo's picture

Hey BellyAcre.....

you're starting to remind me of "Uncle Frank" from the movie "One Crazy Summer".........

The Swedish Chef's picture

The thing there is no covert

The thing there is no covert QE unless The Fed starts lying (as if, right?) about M2 and if they don´t lie it´s QE in plain sight. 10 trillions don´t just go away.

Edit: That girls is as cute as can be but she´s advocating monetizing the debt fully through a central bank. Weimar, here we come... But I guess that is what you get when you take advice on monetary policy from a twelve year old kid.

Turd Ferguson's picture

Thanks, Doc

MODERATOR

You guys are doing GREAT WORK, too.

http://www.silverdoctors.com

Turd Ferguson's picture

FANTASTIC CHART

MODERATOR

Looks like gold at 1550-1600 is fairly priced.

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