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 ()


    Sep 18, 2012 - 1:31pm

    An FUBM

    Yes Folks a mid afternoon treat

    Beastly Stack
    Sep 18, 2012 - 1:32pm


    I believe the algos are mostly configured to chase momentum.That is the biggest reason we see such wide gyrations in thses markets on so many days.

    Hope that gives you some resolve.

    Sep 18, 2012 - 1:33pm

    Train Wrecks

    They're hard to ignore and not look at when they happen.

    I think it's probably even tougher to know that one is going to occur and you can't stop it from happening eventhough you've been observing the slow motion inevitability of multiple one's converging towards each other for quite some time. That's what I see and probably what many of you have been watching also.

    It's occurred to me that we're sitting on the sidelines on the high ground near the railroad tracks watching and waiting for it to happen while trying to prepare for the impact of it. I can't shake the feeling that the so called black swan might just be this China/Japan island situation right now on top of every other problem we are aware of.

    Awhile back I wrote a post about tremors in the ant hill. At the time it may have come across as strange or silly but at this moment are any of you Turdite ants 'not' feeling or recognizing the tremors? I believe the entire planet that is aware or awake enough is feeling 'it'. The ants are nervous, reactive and starting to bite each other.

    The only thing missing at this point is a N. Korean nuclear test seemingly out of the blue. A incident with a Chinese fishing boat seems more likely but I can't shake the feeling that a fuse somewhere is starting to smoke.

    There's no shortage of them.

    Sep 18, 2012 - 1:33pm
    Dr G Best B
    Sep 18, 2012 - 1:34pm

    Who is Shill? LOL.

    Who is Shill?


    Dr G reefman
    Sep 18, 2012 - 1:39pm

    James Turk is a perma-bull

    James Turk is a perma-bull because he takes the LONG TERM VIEW. If you are in this for the next 10 years, then all of these fluctuations on a daily basis means absolutely nothing.... zero zilch. That is why Turk is ALWAYS positive the metals because he is looking past the horizon.

    Then why does he make widely publicized calls based on the short-term? I fully agree with his long-term analysis. I also know that every time he makes a near-term call silver seems to get smacked shortly thereafter.

    Sep 18, 2012 - 1:44pm

    War of words escalates

    Debt crisis: central bank action is work of the devil, says Germany's Jens Weidmann

    The head of Germany’s Bundesbank has raised eyebrows across Europe after he appeared to compare Mario Draghi’s bond buying programme with the "devil’s work".

    Jens Weidmann said that efforts by central banks to pump money into the economy reminded him of the scene in Faust

    , when the devil Mephistopheles, “disguised as a fool”, convinces an emperor to issue large amounts of paper money. In Goethe’s classic, the money printing solves the kingdom’s financial problems but the tale ends badly with rampant inflation.

    Sep 18, 2012 - 1:44pm

    Everybody knows Shill, he

    Everybody knows Shill,

    he like Ferris Bueller before him, is a righteous dude.

    Sep 18, 2012 - 1:46pm
    acer rubrum
    Sep 18, 2012 - 1:49pm

    @ DPH "train wrecks"

    Yeah, I feel it too! It's kind of a "Burning Down the House" sort of feeling!

    Sep 18, 2012 - 1:51pm

    If you can be detained indefinitely....

    and without due process, then if the feds show up at your door, it is game on, right? I mean who would be peacefully detained by the feds when they know they might never come back?

    Sep 18, 2012 - 1:54pm


    I'm sent you a PM.

    Sep 18, 2012 - 1:56pm

    re: Obama Reinstates NDAA Military Detention Provision

    TPTB must have it. So they get it.

    It was always going to be that way regardless of Chris Hedge's magnificent challenge.

    Green Lantern
    Sep 18, 2012 - 1:56pm

    With much respect I say this,

    With much respect I say this, it is not desensitization. It's disassociation. For the majority of individuals in society, on this board. I guarantee it. A much different psychological state.

    Desensitization is reprogramming the reaction to certain stimulus. However, desensitization doesn't remove the underlying fear and it can be retriggered. Most doctors are not desensitized from death. They utilize coping mechanisms for the most part.

    The opposite of disassociation would be flooding or abreaction. Forget about war, sleeper cells, marshal law and those fairly extreme scenario's, the moment we have a market event that put's an individuals financial security at risk, individuals will come out of their dissociation and go into what is known as fight or flight. Basically, a crisis moment!

    Physical prepping for any of these events is a definitely a wise move. You are doing two things, obviously preparing your survival but also distancing yourself from the anxiety and stress associated with that event happening. It's only a distance. Not a removal.

    After 9/11 over 10,000 police and firefighters had PTSD and the statistics among the population is hard to know because not everyone seeks treatment. It's non-combat PTSD or acute stress disorder. But thousands upon thousand that witnessed that much death and destruction, live in person, it's now implanted in your unconscious and hyperarousal (triggering) was rampant.

    People after the depression developed a great fear of banks. All of a sudden one day people had no more savings. WOW, think about it? What we are talking about here is much worse. If unemployment reaches high levels upwards of 50% or more, banking holidays, collapses, people's greatest fears will be triggered even those like us who have become "immune" to this talk. As I have said before, even those with strong sea legs will be rocked. Beyond all the other troubles we will be facing in society, mental health disorders will be rampant including Acute Stress disorder or PTSD. You better believe there are those who are aware and preparing accordingly to give aid. There is nothing, absolutely nothing that can turn and individual into a basket case quicker then threatening financial well being and a food short supply. The aggressive individuals in our society will come out of the ant holes.

    Best B
    Sep 18, 2012 - 1:57pm

    OK, LOL

    But I still dont know who or what this Shill it a Turdism? Fill me in please, dont just laugh at a brother you douchbag.

    Dr G
    Sep 18, 2012 - 2:00pm

    Shill was a long-time

    Shill was a long-time community member--beginning when the blog was posted on a blogspot site. He left the site last year to pursue other endeavors. You can still find his postings as "shill" around the interwebs. He does some good stuff with finance and international relations and silver and gold.

    Sep 18, 2012 - 2:00pm

    I am Shill

    That's right, it is I.

    Sep 18, 2012 - 2:00pm

    re: Shill's head's up

    I'm as worried about what Panetta will do on this trip as I am about a Chinese general's quote. What was that about entangling alliances?


    Panetta repeated the U.S. position that it is neutral in the dispute over Japan’s Senkaku islands... But he also reaffirmed the U.S. defense commitment to Japan, a treaty ally.

    “We stand by our treaty obligations.” "They’re longstanding, and that has not changed.”

    Green Lantern
    Sep 18, 2012 - 2:02pm



    Sep 18, 2012 - 2:02pm


    I'll agree with your choice of words being more siutable to what I mentioned earlier. Thanks for the respectful and well thought out counterpoint :-)

    Best B
    Sep 18, 2012 - 2:02pm

    Thank you

    TY GL, sheeesh, that was worse than going to the dentist.

    Big Buffalo
    Sep 18, 2012 - 2:10pm


    I am Spartacus!

    Sep 18, 2012 - 2:12pm

    @gdog: $50Bn...

    I'm reading that as

    1) paper is bad, mmmkay?

    2) if it more complicated than that, see #1

    S Roche
    Sep 18, 2012 - 2:12pm
    Sep 18, 2012 - 2:13pm

    @ Beastly Stack

    I have no knowledge of this myself, but just following your comment through;

    • if the algos are primarily looking at something different to all the pretty TA charts, with their channels & visual signals,
    • and if algos are what move these markets,

    then all these pretty charts that are produced by so many, are basically detached from any relevance, no?

    Not so much a question to you, it is an open question.

    S Roche
    Sep 18, 2012 - 2:16pm

    re: Spot Gold

    the 50 and 200 DMA are touching...

    Sep 18, 2012 - 2:16pm

    Fed news days

    Seems like every Fed Governor is giving a talk within a two day span. Now it's Dudley. What gives?

    Sep 18, 2012 - 2:19pm

    Good Job Turd

    Santa gave you a thumbs up on this post.

    Jim Sinclair’s Commentary

    Mr. T. Ferguson has done a nice job of cutting through all the MSM commentary on QE by the time honored method of "Follow the Money." He clearly outlines how the banksters to their benefit act as what we used to call stooges to buy Treasury paper. As such, the Fed is Debt Monetizing without any question. Markets will wake up to what all this means soon. Gold is going to and through $3500 with all its usual and sometime bone grinding drama.

    This educational piece is quite worth your time.

    Sep 18, 2012 - 2:20pm

    @Excalibur - devils work

    If Draghi is doing the Devils work, and, as we all know, Blankfein is doing Gods work, does that mean there will be no let up in manipulation and BS in the Great Hereafter?

    Sep 18, 2012 - 2:22pm


    Byzantium was the Eastern wing of the Roman Empire, that survived uninterrupted for over a thousand years in its own right (till the mid 15th Century), and over 1500 years if we consider the beginnings as being the start of the actual Roman Empire. Few empires in history could achieve such longevity, and indeed the western wing survived for only a third of this duration.

    With a nod in this instance to Jim Rickards as monetary historian, among the roots of the longevity of this eastern empire, were the twin pillars of sound money (it was never debased as in the Western Roman Empire), and a tax rate of 10% for everybody, which was considered to be fair and just by all. The citizens and vassals of Byzantium consequently gave their loyalty to the empire, and preferred it to any other available option.


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