Brass Tacks

426
Tue, Sep 18, 2012 - 10:13am

OK, so it has been a few days since QE to infinity became official Fed policy. There is certainly an abundance of swirling news and discussion out there that dances around the real significance. Today, we cut to the chase.

Let's go back and hit on the main FED points:

  • The Fed will keep rates "extraordinarily low" through 2015
  • The Fed will continue $45B/month in Operation Twist through year end
  • The Fed will begin buying $40B/month in mortgage-backed securities (MBS) with no end date or target purchase amount given
  • So many of us have been seemingly immunized against the jolting effect of these headlines. Not just here at TFMR but nearly everywhere that "awakened" citizens congregate on the internet. We take the headlines at face-value but rarely stop to consider things on the next level. But we need to go there today because without a full understanding of what the true meaning and implications are, you're likely to delay actions that you should be immediately taking.

    So, let's go back to the three bullet points above and take them, one-by-one. First,

    • The Fed will keep rates "extraordinarily low" through 2015

    What is The Fed telling you here? Well, a couple of things. First of all, 2015?? That's three freaking years from now! It's one thing to say that rates will stay low for the next 6-12 months. It's something entirely different to say three freaking years! The negative implications of this are dramatic as institutions such as pension funds and insurance companies will be ravaged by the continuance of ZIRP. Additionally, however, what is The Fed telling you about their expectations of economic "recovery"? Despite all of their official forecasts of growth and jobs, it sure doesn't seem that they believe it. Like the old adage says: Watch what they do, not what they say. We talk here incessantly about the miserable economy and the dim prospects for recovery. It is now clear that The Fed feels this way, too.

    • The Fed will continue $45B/month in Operation Twist through year end

    First of all, remember what Operation Twist is. The Fed is selling their short-term maturity holdings (where there is actual demand for "safe havens") and using the proceeds to purchase longer-term notes and bonds. This process is considered "sterilized" because, allegedly, The Fed isn't creating any new money. They are simply "re-positioning" some of their "assets". Whatever. I don't care to get sidetracked as to whether or not this is really a "sterile" process. All that matters is that The Fed is currently executing this strategy to the tune of about $45B/month. The problem for them is, they're almost out of short-term bills and notes to sell and, once this inventory of paper is depleted, the $45B/month is going to have to come from other, "non-sterile" sources.

    Fed vs. Private Sector Treasury Holdings

    The Primary Dealers! Goldman, The Morgue, MorganStanley, Citi, BoA...all of them. They own or purchase new the MBS which The Fed buys from them. And here's the very important next step: The Primary Dealers turn around and use the proceeds from these sales to buy U.S. treasuries! To the tune of $85B/month. Let me do the math for you...that's slightly more than one trillion dollars over the next year. And what does the Congressional Budget Office project the U.S. federal deficit to be in fiscal 2013? It will again be north of one trillion dollars, at a minimum. https://www.cbo.gov/publication/43539

    At the end of the day...and here's where we get down to brass tacks...last week The U.S. Federal Reserve announced a plan whereby they will be almost completely and directly monetizing the deficit spending of the U.S. government. Though the illusion of legitimate borrowing will be maintained and politicians will continue to claim that "we're borrowing all of this from China", you should not be fooled. We have entered a new paradigm of direct debt monetization. By doing so, The Federal Reserve has begun the process of overt currency debasement and devaluation.

    Your only financial protection from this game-ending disaster is the ownership of physical precious metal. Though, in the short-term, dollar-denominated paper assets may perform reasonably well, they offer no long-term protection against your inevitable loss of purchasing power and wealth. Only physical precious metal can protect you in the days ahead. Buy some and add to your stack before it's too late.

    TF

    p.s. I plan to discuss this post in greater detail later today at https://www.turdtalksmetals.com

    About the Author

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    turd [at] tfmetalsreport [dot] com ()

      426 Comments

      Refresh
    Sep 19, 2012 - 2:09pm

    @Ntombi re:Asterix and Obelix

    Wow, I haven't thought about them for years. Asterix and Obelix along with Alley Oop were some of my favorites growing up.



    NtombiPuck Smith
    Sep 19, 2012 - 1:25pm

    The fall of Rome/Puck

    In general I enjoy reading your contributions. Here you say: "I am too lazy to track down sources....." At 76 I know the feeling and would like to offer you a short-cut. Go to the adventures of Asterix and Obelix who greatly contributed to the downfall of the Roman empire. Not sure however whether they already reached the shores of the US of A. Go well.

    Sep 19, 2012 - 10:25am

    really old new thread

    for those of you like me, who will never be first.

    Big Buffalo
    Sep 19, 2012 - 9:53am

    Oil

    Oppps, agaisnt my gut feeling, bought UCO at $33.00.

    I f'ed that one up. ba-zinga on me.

    (Wow, crude at $92.77 - UCO with a $31 handle)

    Gramp
    Sep 19, 2012 - 9:38am

    Fake Bars..

    The fake Bars story...

    Is most likely one of the more 'gentle' ways to hold the gold market in check...

    People (the masses) do not even know where to buy Gold or Silver, or Why. If anyone steps out of the flock and thinks about 'diversifying' their assets, This is yet another way to scare them back in line. It is so non Main Stream that it's looked at as an 'odd' investment choice, open to ridicule.

    I have seen the look on Joe Sixpack's face when suggested that physical Au and Ag in hand, might be prudent. It is a completely foreign concept for many generations now...

    The M.O.P.E. and Spin are layers upon layers deep. It is difficult to unwind years of conditioning. But one method I have found with several intelligent, well to do friends, is simply showing them the Gold Price ten years ago, and the Gold Price today. Then asking them, how many people do you know who took advantage of this kind of Percentage move in the last decade??

    When presented with this data, all the massaging and conditioning from 'above' , is cast aside, replaced by Greed and resentment that they were not on the Train.

    With greed at the helm, and P.o.G near all time highs, Joe sees it as the opportunity has passed, and goes and buys another sixpack...

    Bsong
    Sep 19, 2012 - 9:29am
    Big Buffalo
    Sep 19, 2012 - 9:13am

    Silver

    My guess: Silver should have no problems hitting $35.00 again today, like before 10:30 am.

    Hands wring on how it will handle it.

    Sep 19, 2012 - 9:09am

    Pretty good FUBM going on

    Those dips are getting to be very short lived.

    Visit the FAQ page to learn how to track your last read comment, add images, embed videos, tweets, and animated gifs, and more.

    S Roche
    Sep 19, 2012 - 9:08am

    7.5million+ paper ounces changed hands in the last hour OTC...

    and that's just part of the unallocated gold volume...plus Comex futures and options, plus other exchanges/ non-reporting banks.

    I note Brinks are opening new vaults in London...maybe they anticipate a demand for converting unallocated to allocated... and delivered!

    Big Buffalo
    Sep 19, 2012 - 9:05am

    Silver

    A couple nice bounces off the $34.30-$34.40 range.

    Turd: Thoughts on Oil?

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