Brass Tacks

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.

    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

    About the Author

    turd [at] tfmetalsreport [dot] com ()


    GrampPuck Smith
    Sep 18, 2012 - 11:06am

    Reply to Puck

    Now this is where the spin and M.O.P.E. really comes in handy Puck! Prices must appear stable on food/ consumer goods. We see subtle repackaging into smaller portions for, the same or even higher pricing, as well as incremental increases in price. "America's Got Talent" fans do not pay much attention, they just reach for the cheaper products on the shelf, or just buy beer and hot dogs...

    All last year, I relayed much of the info found here to a good friend of mine who owns a small business. He said,

    " What your telling me is that prices are heading higher on all the goods I purchase..."

    I replied.. " The odds are YES, we are far greater likely to see $5.00/gal gasoline before we see $1.50/ gal. and ect. ect."

    So when he reordered supplies, instead of him buying 1 'unit' of an item, he bought 3. Instead of buying 1 box of whatever he uses daily, he bought 3. These where not small purchases either. He was in a sound financial position that he could afford these extra purchases, without it strapping himself financially.

    We talked yesterday, and he informed me that his distributor's prices have gone up dramatically since he made those purchases last season. He thanked me greatly, shaking my hand.

    This was derived from much of the quality info that i have been able to find here.

    Edit: ( thanks for recognizing the need to not side track the threads Green Mal! Good move!)

    Carry on!

    Sep 18, 2012 - 11:06am

    Fuckin' Black Scholes, that's

    Fuckin' Black Scholes, that's all I have to say :(

    Wallace Hartley
    Sep 18, 2012 - 11:07am

    And Don't Forget...

    the lesson that the MFG bankruptcy taught us....primary dealers will leverage any assets they have up to 40X!!! Whatever egregious "profit" they "earn" from front-running the Fed on MBS will be leveraged to the hilt in the unregulated derivatives market. That's a lot of funny money to continue playing their reindeer games with!!!

    Sep 18, 2012 - 11:07am
    Dr G
    Sep 18, 2012 - 11:11am

    Is it just me or is there a

    Is it just me or is there a ton of good information here on Main Street, interspersed with a lot of wacko/conspiracy/nutjob stuff that makes me feel like I'm digging through a garbage dumpster to find a wedding ring (yeah, I've done that--long story).

    momacEman Laer
    Sep 18, 2012 - 11:13am

    the handbook for human ownership video

    watched it last night, I also recommend it to everyone.

    Sep 18, 2012 - 11:14am

    I wouldn't worry too much about the manipulation

    They're going to shake the tree periodically to see if they can get anything to fall out. At least while they have control. I wonder how many "shakings" they can do before they lose control?

    What I would worry about is when they DO lose control. For when they do, things like I don't know - ATMs and - credit cards - will stop working and probably never work again.

    The clock is ticking now that they've pretty much said the printing presses are rolling and will never stop. Make whatever strategic purchases you can while you can. If there's something you think you're going to need for the next 2-3 years but you don't have to buy it now, now is the time.

    Find the inner wife inside you and go on a shopping spree, but make sure the shopping is all strategically sound.

    Sep 18, 2012 - 11:28am

    Additional thoughts related to the Fed MBS purchases

    Firstly, Turd - thanks for all you do In addition to the details posted by Turd, it seems to me that this open ended MBS purchase program is obviously designed for the Fed to own as many mortgages nationwide as possible. As time goes on, the Fed, a private bank, will continue to accumulate as many American mortgages as they can. Reading between the lines on this, when the system crashes, and mathematically speaking it will crash at some point as it is unsustainable, the Fed will own your mortgage debt using money they created essentially out of nothing. I am of the belief that they don't really care if the prices of homes goes up or down. I believe they just care that they own the mortgage debt. This is not about currency, it is about power and control. To tie this into Turds post, they will buy MBS from the primary dealers (with created currency that will contribute to inflation) who will in turn, more than likely, buy Treasury bonds (debt to be paid by the American people). They will do this until the plug is pulled. This is a double edged sword and the people are on both ends. The worst part is that in this process they are essentially stealing the houses and property from the people from right under their feet. Post-crash they will be able to do what ever they wish with these mortgage debt obligations. While the system is crashing or has crashed they could call in the loans among many other things. "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." (Thomas Jefferson - he certainly knew what he was talking about) What do you guys/gals think?

    Jan Roos
    Sep 18, 2012 - 11:37am


    Thanks for the summary. I am still holding those OCT35 calls but am thinking of taking profit today but you made me reconsider.

    I expect a quick but short spike in the dollar and that might effect pm's short term but if silver moved up today with dollar up as well then silver might go to 37 even if the dollar spikes.

    Who knows anyhow. I take my hat off to some of the traders around here as it is quite stressful especially in the beginning.



    tmosleyDr G
    Sep 18, 2012 - 11:37am

    @Dr. G

    I have to agree with your there. I just put HAVEFAITH on ignore because they posted 12 damn flash videos in one post, slowing my load time to a crawl, and bouncing me around the page like I was on a trampoline. And all for some crazy conspiracy nonsense that no-one cares about.


    And for the record, that won't be permanent, it is just until we reach page two with the comments to speed up my load times. It's just really annoying, though I am sure they didn't mean to be.

    If the Turd still has a programming staff, I would suggest having an option that will allow youtube links to display is embedded flash or as just links, or just limit the number of embedded videos in a given post and have the rest display as links.

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