Time to discuss this "sequester" nonsense.
What a two-bit, vaudeville charade U.S. politics have become. Let me see if I've got this straight...
- The U.S. breaches the "debt ceiling" back in August of 2011. The dollar nosedives and Standard&Poor's downgrades the country's debt rating while gold surges to $1920.
- As part of the deal to extend the debt ceiling by $1,600,000,000,000, Congress punts any responsibility for cutting spending. They create an extra-constitutional "Super Committee" to do the heavy lifting and make recommendations with the caveat that, IF the Super Committee also punts, automatic spending cuts will kick in at about the time the debt ceiling is reached again. The target date was 3/1/13.
- Of course, in true Washington fashion, even the Super Committee can't come to an agreement and they...not surprisingly....punt.
- Because spending is out of control, the debt ceiling is actually reached ahead of schedule, back in January. Once again, rather than deal with it, Congress waives the debt ceiling LAW and extends it without limitations, to August.
- But now we have those nasty "sequester cuts" that are described in point #2 above.
- What to do? What to do?
- God forbid that the rate of growth of spending will be slowed. Good heavens we can't have that! Children and old people will die in the streets without the constant growing intervention of the Federal Leviathan.
- But we can't have a "deal", either, so the sequester kicks in and now the discussion is about this supposed "U.S. austerity".
Let's stop there. What a freaking joke this is! If nothing is done, all the "sequester" means is that federal spending will increase by $8T instead of $9T over the next 10 years. Brutal, huh? And because of this, gold is....falling? Seriously?? The U.S. has added another $1.6T to its national debt and the fiscal 2013 deficit is already about 20% above fiscal 2012. Entitlement spending will likely never be addressed and more credit downgrades loom and yet gold falls from $1920 to $1550? Nah. Move along. All of us tinfoil-hatters are simply crazy. Just a free and fair market reaction. That's all.
Even more silly is this notion of "austerity", the debt, the economy and QE∞.
- Allegedly, gold is falling because of this forced U.S. austerity.
- Allegedly, gold is falling because assorted Fed Goons have claimed that QE will soon end.
- Allegedly, gold is falling because the all-knowing and prescient speculators are flowing their funds into the short side of the trade.
- And this is all a crock of excrement.
- Please explain to me how #1 and #2 go together when there is seemingly universal agreement that a drop in U.S. government spending will force a dramatic slowdown in the already anemic growth of the U.S. economy.
- Slowing/stalling/non-existent economic growth will reduce tax revenues.
- Larger deficits require larger QE intervention to soak up bond issuance and keep rates low.
- Federal layoffs will increase lines at unemployment offices.
- The Bernank has consistently maintained that QE∞ will continue until unemployment drops below 6.5%.
- All the while, since 1/1/13, The Fed has simply created from whole cloth $170,000,000,000 brand new dollars. Since 1/1/13, the dollar price of gold has fallen from $1691 to $1581.
- The Fed will create from whole cloth a minimum of $85,000,000,000 new dollars in March.
- The Fed will create from whole cloth a minimum of $85,000,000,000 new dollars in April.
- The Fed will create from whole cloth a minimum of $85,000,000,000 new dollars in May and so on...
Now, before you say something like, "following this path, Turd, gold will be around $1400 by June 1", let me just emphatically state: No, it wont. Games are played in the short term and that will always be the case. But the Laws of Economics are just as strong and just as consequential as the Laws of Physics. Yes, it is possible to, by using tremendous amounts of energy, suspend and even break the laws of gravity. However, once that energy slows or dissipates, gravity reasserts itself. The same can be said in economics. Yes, it is possible for The Fed, their Goons and their Agents to suspend and seemingly break the Laws of Economics. However, in the end, their efforts will fail just as all previous attempts to inflate and prosper through currency devaluation have failed.
Stay the course. Add to your stack. Prepare accordingly.
p.s. Late Friday, this was posted at ZH. Why worry about $85B in sequestration "cuts" when the U.S. government borrows $80B in one day? https://www.zerohedge.com/news/2013-03-01/there-goes-sequester