The Bernank Giveth

Wed, Dec 12, 2012 - 1:44pm

Well, there you have it. The Fed gave us The Full Monty. Beginning in January, The Fed will provide $85B/month in "unsterilized liquidity". For prespective, QE2 was about $70B/month of unsterilzed money printing for a total of eight months and $600B. This latest incarnation of Quantitative Easing represents 20% more QE/month and it's open-ended! New and improved with even more, freshly-printed greenback! What a deal!!

Here are the headlines, from ZH:


As I type, the metals are rallying but not to the degree that many of us would have expected. Gold is $1722 and silver is $33.70. What gives? The answer is in the details and I suspect it will all be cleared up in The Bernank press conference at the top of the hour.

The one, major, heretofore unseen detail is this: The "exceptionally low" Fed Funds rate is now stated to stay low until two economic conditions are met:

  1. Unemployment must tick down under 6.5%. (Not happening anytime soon.)
  2. The CPI exceeds 2.5%. (Also not happening anytime soon as the CPI is about to reconfigured, again, in order to slow the COLAs for Social Security.)

These new conditions have confused the metals markets and slowed the buying. Some are seemingly reluctant to charge into the metals if QE is going to end in April. AHHHH, BUT THAT'S THE RUB!!! If I'm reading this right (and LIESman has said the same), the economic conditions only apply to the Fed Funds rate. They do not apply to QE∞! QE is truly open-ended, potentially to infinity. Expect this to be cleared up during The Bernank's press conference and look for the metals to rally this afternoon.

And again, why is QE∞ open-ended and without conditions?? Because QE∞ is not about economic growth! Oh sure, if it promotes a little growth, The Bernank will take it but QE is about funding the deficit spending of the U.S. and keeping rates low. Period. End of story. And until/unless enough buyers materialize to fully fund the Treasury at auction, The Fed is going to have to continue picking up the slack. Got it? Read this again if you still need help:

Therefore, expect the rallies in the metals to begin in earnest this afternoon or tonight/tomorrow. For perspective, in early November of 2010 the Fed announced the fixed program of QE2, mentioned above at $70B/month for the eight months of November 2010 through June 2011. On 11/5/2010, gold closed at $1397. It then traded as high as $1577 in late April and went on to $1920 in August of 2011.

Silver, as we all recall, was even more dynamic. On 11/5/2010, it closed at $26.75. It ultimately traded to $49 by late April before all that followed. Regardless, it was still trading at $36 when QE2 ended in late June 2011.

For 2013, we must expect more of the same. Not only is QE rolling again but it's for 20% more cash! I am 100% confident that the metals will rally hard in 2013. Why wouldn't they?? The same monetary conditions as 2011 will exist and, this time, the physical metal supply constraints are even tighter as central banks, sovereign and hedge funds, wealthy individuals and even regular blokes like you and I are more keenly aware of the situation and rushing to exchange rapidly-degrading fiat for hard assets.

Please buy more metal today. Now is the time. You can be supremely confident that the fiat-conversion price is only going to be rising in the weeks and months ahead. The madness of the central bankers got more desperate today and physical metal is your only financial protection against them. Buy some more today.


3:05 pm EST UPDATE:

OK, so now we know why the metals aren't rallying sharply. There are conditions for continued QE and they are similar to the Fed Funds conditions.

However, I watched the press conference and personally listened to what The Bernank said. He clearly stated this:

The conditions for curtailing QE and raising the Fed Funds rate are only being offered for the purpose of transparency. There is no change to the actual forecast of "extraordinarily low rates through mid-2015". No change at all. The Fed does not expect a sub 6.5% unemployment rate OR a greater than 2.5% inflation rate through mid-2015 and, therefore, low rates and $85B/month in QE can be expected to continue until then.

YOU MUST UNDERSTAND THIS. The metals are trading this afternoon as if QE will only last through April. This is nonsense and that is NOT what The Fed is saying. The Bernank even went so far as to say that even if the unemployment rate fell to 6.5%, that would not mean a curtailment of QE. They'd still be looking at the labor force participation rate and other factors. He called this ongoing assessment "subjective".

And, again, this is all BS anyway! Economic conditions are only a secondary reason for QE. The primary reason the Fed is compelled to print over $1T in 2013 is deficit funding!! Without The Fed and the PDs buying $1T in treasuries next year, rates would skyrocket to the place where natural, organic buyers would materialize. Given the current state of affairs, at what rate would that be? 8%? 10%? 15%? NO WAY that can be allowed so The Fed is forced to fund almost all of the U.S. federal deficit next year and beyond.

So, the real metric as to when QE might end is this: When can The Fed exit the treasury market without causing rates to violently rise? The answer is, of course, NEVER. Can't do it. Not gonna happen.

Unsterilized QE, at a minimum of $85,000,000,000 per month is here to stay. Permanent and to infinity. BTFD.


About the Author

turd [at] tfmetalsreport [dot] com ()


Dec 12, 2012 - 1:47pm

AG are Au

What to buy??

Peoples Front of Judea
Dec 12, 2012 - 1:48pm

2ND DOH!!!


Katie Rose
Dec 12, 2012 - 1:48pm

Top Five?


Dec 12, 2012 - 1:49pm


First Thanks to Turd!!! On the day like this! YEAH!!!

Dec 12, 2012 - 1:49pm


is losing its shine rapidly while silver is holding most of its far, at least.

Dec 12, 2012 - 1:49pm

Metals are under their thumb

Remember this Rolling Stones song?

The Rolling Stones - Under My Thumb - Aftermath - June 1966
Dec 12, 2012 - 1:52pm

i'm dreaming

of a big yellow hat.

come on 33.81


Dec 12, 2012 - 1:53pm

gold now sub 1715

that rally is elusive. gold is down in eur.

expecting range trading with price underpinned by phys buying, esp in europe.

Dec 12, 2012 - 1:55pm


is the server overloaded today?

Dec 12, 2012 - 2:00pm

Just Remember

It's NOT our debt and never was......It belongs to the FR, they created it and it's their responsibility.....

Be Prepared
Dec 12, 2012 - 2:00pm

Dec 12, 2012 - 2:01pm

The two paragraphs in question

Here they are (with my emphasis added):

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Read more:

The key here is: "after the asset purchase program ends". Ends?? When???

Watch the press conference for answers.

Dec 12, 2012 - 2:01pm


on this site crashing on BBernanke day.

i wouldn't need any gold.

next thing u know i will be pointing out conspiracies to mr. Fix.

Dec 12, 2012 - 2:02pm
Dec 12, 2012 - 2:04pm
Dec 12, 2012 - 2:04pm

Mainstream Media

Lot of talk about QE Infinity.... almost in a joking but accepting/welcoming manner...

Obviously no talk about what that could mean besides the fact that stocks would be going up.

Dec 12, 2012 - 2:07pm

Can you only imagine

If Bernank let us down - imagine if they didn't add the 45 billion? We would be done 50, 75 , 100? As it is, we get nearly the most bullish scenario possible and gold is barely holding on to a positive gain. Turd, you were right, it would have been fugly if the Bernank came out hawkish.

Dec 12, 2012 - 2:09pm


Officially tieing the unemployment rate into QE virtually (and publicly) assures that it lasts for as long as they need it to....or not.

Just consider their skewing of the BSBLS and how much leeway they have one way or another once they get closer to their magical 6.5% unemployment rate.

What today's Fed. announcement does is cement the tolerance (and the necessity) of QE in the publics mind as being acceptable and vital to a better economy because afterall...who doesn't want employment to get better?

The psychological impact on what QEUnemployment stands for (regardless of the effect or cost) will make QEU appear to be a positive thing. In fact, in the future the adding on of more QEU will be seen as a good thing all the while not being recognized as the bond buying mechanism that it actually is.

If I weren't on a cell phone right now I'd go on and on about this right now. I might have to trademark the term...QEUnemployment. ZH has my permission ;-)

Pandora's box just had the door removed from it.

Dec 12, 2012 - 2:11pm
Dec 12, 2012 - 2:12pm

wow, gold up $5

what am I missing here?

Dr G
Dec 12, 2012 - 2:12pm

ZeroHedge has a wonderful

ZeroHedge has a wonderful story:

The summary is that the Fed will end this QE4 when unemployment is below 6.5%. So they've painted themselves into a corner. While unemployment is high the markets will love the QE. When unemployment gets low the markets will not get QE and will tank.

I guess we will be seeing 7% unemployment for a long time, won't we?

Dec 12, 2012 - 2:13pm

Re: DarkPurpleHaze

What today's Fed. announcement does is cement the tolerance (and the necessity) of QE in the publics mind as being acceptable and vital to a better economy because afterall...who doesn't want employment to get better?



Groaner Dr G
Dec 12, 2012 - 2:14pm

Dr G

The unemployment numbers are manipulated more than the metals so they make up what ever they want,

However you will never see 7% again.

Dec 12, 2012 - 2:16pm

Two questions

I'm trying to think through this - obviously things are going to shit, but I don't think QE itself will force a hard turn into the wall. If we only faced QE in a vacuum, we'd be in a long, slow "frog boil" situation thanks to inflation. But we're not in a vacuum - there are lots of external events, likely triggered directly or indirectly by QE, that are going to cause an economic super wedgie.

That said, what do you all think about these possible triggers:

China's response to QE - I know they're not buying treasuries, but they do own a lot already, and we're devaluing those dollars. What do they do? Respond publicly by dumping the treasuries they own? Or quietly convert them to hard assets? (I'm not concerned about our other major creditors, Japan and England, since there's something fishy going on there - some kind of back scratching shenanigans going on.)

Rating agencies - Unlimited QE means the politicians don't have to worry about finding buyers for our debt, so they don't have much incentive to cut back. Will the rating agencies react to QE directly, or does it make them more likely to downgrade on whatever happens through the fiscal cliff?

What about other triggers? Continued bilateral trade agreements? Reducing the use of USD as the basis for the oil trade? What else?

Dec 12, 2012 - 2:16pm

Intraday Volume

Can somebody please give the best place to see Gold/Silver intraday volume?


Bill of Rights
Dec 12, 2012 - 2:17pm

U.S. Nov. budget deficit $172

U.S. Nov. budget deficit $172 billion: Treasury

The U.S. government ran a budget deficit of $172 billion in November, the Treasury Department said Wednesday, bringing the total shortfall for the first two months of fiscal 2013 to $292 billion. The government spent $334 billion in November, and took in $162 billion. The fiscal year-to-date deficit is up 24% from the first two months of fiscal 2012. The government's fiscal year runs from October to September.

Bernanke: Inflation expected to remain tame

( Lips quivering )

Katie Rose
Dec 12, 2012 - 2:18pm

Top Five?


Yesterday I found a small jar of quarters. Feeling like Santa had visited early, I headed off to the local jeweler to buy some real quarters. We have no LCS in this rural farming/logging community.

This is what I noticed while there counting out the quarters into one dollar stacks.

Four women came into the shop to sell their gold and silver jewelry. The amount of money the jeweler gave them was ridiculously low. I asked him how come he was paying so little, and he told me he doesn't receive much as they all go to be melted down.

I asked him if he gets any sterling silverware, and he replied that he does. When parents die, very few of the children keep their silver inheritance. They march into his store to trade silver for fiat at a sharp discount. I told him I was looking for more spoons, so would he please call me when some arrived into his store? I told him that everyone in my family is receiving a set of sterling silverware for Christmas from me. We want the potential health benefits from it.

A long discussion followed about the medical properties of silver...

When I had counted out all of my quarters, I traded 119 of today's quarters for 5 of yesterday's silver quarters.

Think about it: 119 to 5.

That is what is happening today. Another announcement of more QE to infinity.

We are being robbed blind. Soon the ratio will be 100 to 3, then 100 to 1.

All my parent's hard, hard work. All my work being negated by this QE bull crap.

We owe it to our children to stack. We owe it to our elderly parents to stack. We owe it to ourselves to stack.

Men, ignore your wife's whining. Women, ignore your husband's scolding. Stack for them. Otherwise, they will be like these poor, poor ignorant women who came into the jewelry store selling off their jewelry in order to purchase Christmas presents for their families.

Soon, with the continued USA drought, folks will be hawking their jewelry just to put food on the table.

We are being given a once in a lifetime gift with these cheap PM prices.

Keep stacking as if your life depended upon it.

Because it just might.......

Dec 12, 2012 - 2:18pm

The baby doesn't want more cash...

I guess the baby runs a HFT anti-metals hedge fund!!

Dec 12, 2012 - 2:20pm

from other thread

inverse h & s looking positive

200 DMA taken back today

Dr G
Dec 12, 2012 - 2:20pm

Why the heck is silver up 10x

Why the heck is silver up 10x more than gold today on a percentage basis? Bizzare. Usually the ratio is 1.5 or so.

@Groaner, if we never see unemployment below 6.5%, then this QE4 continues forever. That won't happen.

I think the well dries up this summer. Unemployment gets lower, QE stops, and the market tanks with a larger than anticipated summer sell-off.


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