And This Is Surprising?

170
Tue, Jul 12, 2011 - 6:44pm

From the Fed minutes released today:

"Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation....A few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run."


From TF Metals Report:

FRIDAY, MAY 20, 2011

Points For Friday
A couple of things before we get to the charts.

Just to address this "ending of QE" issue again. By some estimates, the U.S. Federal Reserve and their primary dealers (the PDs are the agents from which they buy back recently issued bonds via POMO) make up as much as 70% of the bidders in the overall treasury market. If they were to now exit this market, even in part, interest rates will rise dramatically as prices of bonds will fall due to lack of demand. The latest $600B QE/POMO schedule lasted 6 months. What was the U.S. federal deficit over those same six months? A little more than $600B. Even Stevie freaking Wonder can see the direct connection.
If the Fed halts QE:
1) Rates skyrocket
2) U.S. economic activity grinds to a halt
3) Tax revenues plummet
4) Even more deficit spending is then required
5) Rates go even higher
6) Interest on national debt component becomes an even larger % of federal budget
7) Even more deficit spending is required
8) Rates go higher still
9) Tax revenues fall further
10) The Great Keynesian Ponzi finally ends
DO NOT believe this silly notion that QE is about economic growth. QE is about funding the deficits of the U.S. government. Every other effect is ancillary. The only thing that would allow the Fed to end QE would be a dramatic reduction in the annual federal deficit. This would lead to a deficit spending level that the "market" in treasuries could absorb. Until then, the presses will run. Period.

Again, the intraday high of the August11 contract was 1577.70 on 5/2/11. A close above there would be extraordinarily bullish. This afternoon's high was 1574.30. Tomorrow will be quite interesting. TF

About the Author

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  170 Comments

Gont
Jul 12, 2011 - 6:46pm

totally surprised

.... NOT !

jlee2027
Jul 12, 2011 - 6:47pm

Is the Ponzi finally ending?

I'd love to see Congress refuse to raise the debt ceiling to force O to make actual budget decisions. Brave new world.

SE
Jul 12, 2011 - 6:52pm

I don't think so

Nice idea, but remember that many of the Social Security recipients are well-armed... They may not allow the cuts to happen.

flaunt
Jul 12, 2011 - 7:09pm

Not surprising

Well, only a little. I still think it's going to be Jackson Hole again where they officially announce a new program. It's a tad early to announce but the economic indicators are really starting to roll over and they don't want to let things snowball when they could act. In their minds taking action would be helping solve the problem before it turns into a nightmare. The main catch however is that oil is going to go up again with any additional QE. Perhaps that's why they released the strategic reserves, in order to hopefully lower prices enough to give clearance for a new program. The Fed being a private entity but very politically motivated, they don't want oil prices going to the moon yet at the same time they don't want all those nasty things to happen that Turd outlined above. So on the one hand you have higher prices and on the other you have no jobs. Which is a more pressing matter for those interested in getting reelected? If you're BB, you want to make the President look good no matter what. If you're the President, you want robust economic growth and a solid job market. People get annoyed when they have to pay $4 for a gallon of gasoline, but they get downright ugly when they have no job.

stoneeh
Jul 12, 2011 - 7:11pm

The Treasury buying will

The Treasury buying will continue, so much is certain. What I really don't get is why some people now expect QE to be necessary for the PMs to move forward? Sorry but they have been moving up consistently for more than five years before QE1 was even announced. Even if all QE were to stop today, which we know is virtually impossible for the reasons stated above, we'd still have the effects of zero % interest rates and we'd still be very much in a precious metals bull market. Even if Benny were to move interest rates up to 10% tomorrow (which would btw totally and utterly crash what's left of the economy), we'd still be in a PM bull market, because the inflation we've created over the last couple of years will yet have to show itself the next couple of years, and the best investment in such an environment would still be precious metals.

- Markus

flaunt jlee2027
Jul 12, 2011 - 7:11pm

Nice thought but coming up on

Nice thought but coming up on election season there's no way the Republicans are going to go down as the ones who shut down the government or forced a default. That's ammo in the pocket of the Democrats.

Silver Monkey
Jul 12, 2011 - 7:11pm
flaunt
Jul 12, 2011 - 7:12pm

And seriously pissed off when

And seriously pissed off when pumping gas and out of work!

Economical Disaster
Jul 12, 2011 - 7:13pm

MAIN STREAM NEWS said..

no QE3 after QE2 don't you guys listen? Amazing how everything that comes out of their mouths is the complete OPPOSITE! Jim Sinclair stated "QE infinity" until complete collapse.

Silver Monkey
Jul 12, 2011 - 7:14pm

Republocrats

This is exactly why the whole "Ds bad Rs good" OR "Rs bad Ds good" is such a bullshit waste of time. BOTH parties have driven this country into the ground. NOTHING will change until/unless they are broken.

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