Brass Tacks

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.

  • The Fed will begin buying $40B/month in mortgage-backed securities (MBS) with no end date or target purchase amount given

And now here's where it gets interesting. The key to this bullet point is the "no end date, open-ended" component. In fact, The Fed went so far as to state that they "stand ready" to increase the monthly amount of MBS purchases if "the labor market doesn't improve".  OK, again, watch what they do, not what they say.

ZIRP will continue through 2015 but Operation Twist runs out of funds and ends late this year. Well, then, from where will the $45B/month in Operation Twist be replaced. That's an easy one. The Fed has already told you the answer. Since the labor market won't be improving anytime soon, they will simply increase their monthly purchases of MBS from $40B to $85B.

An here's where almost everyone drops the ball. The mainstream media will tell you that The Fed is "supporting the mortgage market" and "helping to keep homes affordable" with this program. This is complete, unadulterated BS. Sure, The Fed is buying $85B in MBS every month...but...from whom??? Which institutions own these MBS and are obligingly selling them to The Fed??? I'll wait here and let you think about that one for a few moments...




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.

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.


p.s. I plan to discuss this post in greater detail later today at


The Green Manalishi's picture

Bra Stacks

<EDIT: Though that is one of my favorite pictures of all time, I removed it simply because I want this post to be spread far and wide and I'm afraid that the pic will turn off too many first-time TFMR visitors. Please feel free to post it again some other time cheeky TF>

The Green Manalishi's picture



Bollocks's picture


"The Greedy Manalishi"

achmachat's picture


Thank you for providing us with this awesome corner of the interwebs.

Mr. Fix's picture

@ The Green Manalishi

You win for the best post of the week!

Rui's picture

Gold and silver are challenging the leap day resistance.

Considering the selling volume on the leap day it could take a while to break through the resistance.

murphy's picture

Green Man

I didn't know TF put you in charge of the T.I.T.S. index. Looking up today

Um, two <thumbs> up?

El Gordo's picture

Operation Twist

When I was in my other life, looking into the affairs of banking institutions for the government, a couple of the bankers got into real hot water by swapping bonds with short term maturities for bonds with long term maturities.  The problem is that the market values are not the same, so when you do that, you have to show a sale and a purchase and account for the profit and loss at the time of the transaction.  Off to jail for you Mr. Banker for not keeping your books right.  Now as to the government bank doing the same thing is most definitely like peeing on your leg and telling you it's raining - but no jail time for him.

beardeus's picture

Repost from end of last thread

I have been reading some articles from Gary North and he has some very good insight!

He says that the United States will default as opposed to having hyperinflation UNLESS the FED is nationalized.

Check out some of his writings and tell me what you think.

thurd aye's picture

top ten

top ten.

I used to have a girlfriend who did those shots in her recent past. They stand up against a wall next to the mattress ,otherwise the mountains crumble,as it were. ;O))

maravich44's picture


Turd Ferguson's picture



Here are some charts that I didn't fit into this post.

Eman Laer's picture

I dare you... watch this video. My guess is that your programming won't allow you to listen to it. 

I'm not sure where I discovered this, maybe at TFMR, so sorry if it's a repeat but I think it's worth spreading around. 

sevin's picture

Clear Explanation

Thanks for the clear explanation Turd. It makes sense now that Primary Dealers would be buying the treasuries. On another note, after more than a year long battle I have finally gotten my family to invest in some PM's. Each of my siblings had a savings account when they were born. When they would get money for their birthday's or chores they would put money into their savings accounts. They were not allowed to touch this money until each of them were 21 according to my parents. But after countless discussions I finally convinced them to put that money into physical. Each of my brothers and sisters now has a little stash they can call their own now. Every night at dinner they ask me what the current price is of silver and gold and I tell them not to worry about the daily price fluctuations. They have said every month whatever they save they want to purchase more physical. When they are holding PM's in their hands they like it much more than seeing digits in a bank account. They hear me talk about Turd all the time and used to ask if I was on that "blog", but now they all want to know what Turd was talking about on his blog today. Thanks Turd and other Turdites for what you do for this community! I will post a picture of them soon.

tyberious's picture


Another excellent analysis! I hadn't quite put together the FED<MBS<Primary Dealers>GBS=( Hyper?) Inflation

Rui's picture

@ Gary North's thinking

USGovt will inflate some and default some. They will inflate to cover their closest cronies and default on those not part of the "family".

Puck T. Smith's picture

When does it start to show up in the stores.

I know gas prices are already showing it.  I have had an on-going dialog with the clerk at my local Shell station.  A few days before the inevitable QE^forever I told him what was coming.  A couple of days after he told me "you were right, our replacement cost has already gone up." 

But I'm wondering, does anyone have any hints as to when we start seeing almost weekly, if not daily price hikes on things like food?  At some point it will become obvious to even the most asleep and people will start emptying shelves and hoarding.  Any guesses?  Next week?  Before Christmas?  In the spring?  Knowing what is one thing, knowing when is another.

pforth's picture

Gary North...

wasn't he the guy that made a huge fuss over the year 2000 glitch and got it completely wrong?

Money By Trading's picture

My Next Move

With charts...

Gramp's picture

You have me asking the right Questions TF!

Ok, I was going to ask folks here, about how this process you described works Turd.

...but you were on it before i had a chance!


"once this inventory of paper is depleted, the $45B/month is going to have to come from other, "non-sterile" sources.(TF)


The question i was forming  was  where the funds come from, to do these purchases... and of course the answer is not that simple. I will have to reread to better digest parts of the info.

  As always...  there is more than meets the eye... to everything.

Thanks for casting some light into the dark corners of our financial dungeon!

The Green Manalishi's picture

RE: Bra Stacks

No probs Turd - it was quite quick for me though devil

Haole Guy's picture

It seems like the TPTB...

are throwing everything they can to cap gold @ 1775 and silver @ 35.  Its only 1040 am est.  This is going to be interesting the rest of the day

stingbee30's picture

Re: My Take

A few days ago, I mentioned that Oil will sell-off....GOLD and Silver are starting to diverge from Oil.  We are sort of seeing some divergence from the general market as well.  This is a strong indication that GOLD and Silver will move higher regardless of OIL and general stock market.  In regards to $USD, i like the fact that we moved higher even with Dollar up today...

In summary, this is very significant...This means many funds will start chasing GOLD and Silver.  We are probably getting more retail participation as well.  I love divergence from the norm--a clear indication that we will trade in isolated fashion vs. the rest of the market.

Silver is leading again today....This means the GSR analysis by Mr. Ivar is coming to fruition.  The $37.50 is coming shortly...Good luck...The Volume today has spiked up with the move.  This means we are going to see another 50K volume day on Silver.  Moves with volume is always good.  Yesterday's sell off was done with very low volume. 

Mr. Fix's picture

@ The Green Manalishi

Now I really regret refreshing the page.

I'll miss her.sad


I want my hat tip back.

(Just kidding Turd)


ClinkinKY's picture

Personally, I'm shocked /s. George Soros...not so much.

Emails reveal Justice Dept. regularly enlists Media Matters to spin press


LAKE BUENA VISTA, FL - JUNE 28: U.S. Attorney General Eric Holder addresses 83rd LULAC National Convention on June 28, 2012 in Lake Buena Vista, Florida. The House of Representatives will vote today on a contempt of Congress charge against Holder. (Photo by Gerardo Mora/Getty Images)

Internal Department of Justice emails obtained by The Daily Caller show Attorney General Eric Holder’s communications staff has collaborated with the left-wing advocacy group Media Matters for America in an attempt to quell news stories about scandals plaguing Holder and America’s top law enforcement agency.

The Green Manalishi's picture

Brass Stax?

Turd Ferguson's picture

And if I might ask...


The post from last week "QE to Infinity" was reposted to FB about 125 times. Anyone who felt compelled to do that should post this followup, too. The masses need to read this simple explanation. Thanks.

Lady Gaugau's picture

@pforth re: Gary North

Yes I recall Gary North and Y2K ... also Michael Hyatt Hyatt in particular, ripped off thousands of people who drank his Kool-aid, bought into his fear mongering and totally outlandish and unfounded predictions, paying him $4,300 and more for a year's worth of disaster food they would surely need at the stroke of midnight on Jan. 1, 2000.

Hyatt slinked away with his tail between his legs, but immediately diverted all attention to the horrors of identity theft, with plenty of products to foist on unsuspecting and naive followers.

He was recently dismissed from his job as CEO of Thomas Nelson Publishers, now teaching people to be successful authors, like himself. But to do so one must buy his secrets in pricey eBooks and audio recordings. 

Missiondweller's picture

CNBC is amusing today...

They're trying to make sense out of yesterday's sudden, massive sell off in crude oil....

You know, the same BS we've been seeing in metals for the past two years. I guess it was "OK" when it was metals but something entirely different when it oil!!

Edit: And nobody seems to have made the cognitive connection that gold got "hit" at the same time of day and also suddenly dropped off in what could only have been an attack on KEY multiple commodities.

The Green Manalishi's picture

Just in Case

Bra Stacks now available in the Speakeasy, in case you missed it?

If Turd is OK with it?

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