Financial news

Following the Fed's announcement of QE3, there's been a lot of reaction from various sources.  The ones I trust are uniformly pretty negative about it.  Here are links to a number of worthwhile articles, with a brief quote from each and, in some cases, a comment from me too.


1.  What Mitt Romney Also Said: A Glimpse Of The Endgame?

(Romney quote)  You know, we borrow this extra trillion a year, we wonder who's loaning us the trillion? The Chinese aren't loaning us anymore. The Russians aren't loaning it to us anymore. So who's giving us the trillion? And the answer is we're just making it up. The Federal Reserve is just taking it and saying, "Here, we're giving it." It's just made up money, and this does not augur well for our economic future. You know, some of these things are complex enough it's not easy for people to understand, but your point of saying, bankruptcy usually concentrates the mind.

I've long said that Romney is almost as bad a choice as Obama for our next President . . . but if he's actually willing to follow through on this understanding of our financial situation, and do something to reverse it, he might not be as bad as I'd feared.


2.  Who really profits big from food stamps? JPMorgan & Walmart.

JPMorgan Chase, one of the big banks bailed out in the financial crisis of 2008, is a private contractor retained by over half of US state governments to issue EBT cards and manage recipient accounts amounting to billions of taxpayer dollars every month.

. . .

Asked last year about the role food stamps played in JPMorgan's business, Christopher Paton, managing director of JPMorgan's "Treasury Solutions" business, said:

"This business is a very important business to JPMorgan. It's an important business in terms of its size and scale ... Right now, volumes have gone through the roof in the past couple of years."

So we bail out the banksters to the tune of tens of billions of US taxpayer dollars, only to have them charge US taxpayers even more for running a bailout program for individuals in need.  Anyone else think this isn't exactly fair or just?


3.  Get Ready For An Epic Fiat Currency Avalanche.

Quantitative easing has shown itself to be impotent in the improvement of America’s economic situation.  Despite four years of free reign in central banking, employment remains dismal in the U.S., the housing market continues its freefall, and, our national debt swirls like a vortex at the heart of the Bermuda Triangle.  Despite this abject failure of Keynesian theory, the Federal Reserve is attempting once again to convince you, the happy-go-lucky American citizen, that somehow, this time around, everything will be “different”.

. . .

... the bottom line is that at the very least our national debt has increased by 60% in only four years time!  Now, the private Federal Reserve wants to introduce unlimited stimulus, on top of Operation Twist, and the incredible money burning habits of our current government?  Are Keynesians really foolish enough to think that the generation of such massive liabilities will somehow undo the crippling effects of already debilitating debt?  Answer:  Yes.

Inflation In Necessities: Food and energy prices remain painfully high, and are now in the process of inflating beyond the average person’s ability to pay.  Oil in particular has remained almost static above $100 a barrel (Brent).  This has been blamed on numerous scapegoats, from Middle East turmoil to “speculation”.  Yet, long term high prices show that neither of these explanations is fully sufficient.  In reality, only currency devaluation allows for such a steady and consistent inflationary reaction in commodities.  Unfortunately, we haven’t seen the worst yet.  QE3 will send prices skyrocketing, and with the open-ended nature of the stimulus, there is no ceiling.  We could very well witness Weimar style hyperinflation in the near term.

4.  QE3: Helicopter Ben Bernanke Unleashes An All-Out Attack On The U.S. Dollar.

In the coming months, hundreds of billions of dollars that the Federal Reserve has zapped into existence out of nothing will be injected into our financial system.

So what will happen to all of this new money?

If banks and financial institutions use that money to make loans then it could have somewhat of a positive impact on the economy in the short-term.

However, the truth is that it isn't as if banks are hurting for cash to loan out.  In fact, right now banks are already sitting on $1.6 trillion in excess reserves.  Just like with the first two rounds of quantitative easing, a lot of the money from QE3 will likely end up being put on the shelf.

But the stock market loved the news because they know that the previous two rounds of quantitative easing have been great for the financial markets.  On Thursday, the stock market soared to levels not seen since December 2007.

There is much rejoicing on Wall Street right now.

And this stock market bounce is great for Bernanke's good buddy Barack Obama.

Obama nominated Bernanke to a second term as Fed Chairman, and this might be Bernanke's way of paying him back.

But of course the Fed is supposed to be "above politics" so that would never happen, right?

. . .

QE3 is also probably going to cause commodity prices to rise just like QE1 and QE2 did.

That means that you will be paying more for gasoline, food and other basic necessities.

So there may not be more jobs, but at least you will get the privilege of paying more for things.

The inflation that QE3 will cause will be particularly cruel for those on fixed incomes such as retirees.

None of the extra money from QE3 is going to go into their pockets, but they will have to pay more to heat their homes and fill up their shopping carts.

And the "exceptionally low interest rate" policy of the Federal Reserve is absolutely devastating for those that have saved for retirement and that are relying on interest income for their living expenses.

In short, quantitative easing is very good for the wealthy and it is very bad for the average man and woman on the street.

5.  Regular gasoline retail prices, adjusted for inflation, have never been higher.

Source: US Energy Information Administration (full-size graph at the link)

It's no secret that the main reason for the increased cost of fuel is currency depreciation caused by inflation - and the increased currency depreciation caused by QE3 is forecast to take crude oil from its present just-over-$100-per-barrel levels to around $150.  Guess what this does for transport costs for almost everything bought by consumers?  That's right . . . price hikes, here we come.  Inflation strikes again!


6.  The banksters have just 'bought' sufficient Congressional representatives to roll back one of the major legal protections against banker fraud and misrepresentation.  Remember in November!


7.  Why the Government won't fight Wall Street.


8.  President of the Federal Reserve Bank of Dallas, Richard Fisher, gave a speech to the Harvard Club of New York City on September 19th, 2012.  He made a number of very good points, but his closing remarks struck me as particularly important.

If you want to save our nation from financial disaster, may I suggest that rather than blame the Fed for being hyperactive, you devote your energy to getting our nation’s fiscal authorities to do their job.

Since 1879, every chapel service at the Naval Academy concludes with a hymn that contains the following plea: “O hear us when we cry for Thee, for those in peril on the sea.” We cry for a nation that is in peril on the blustery seas of the economy. Our people are drowning in unemployment; our government is drowning in debt. You—the citizens and voters sitting in this room and elsewhere—are ultimately in command of the fleet that sails under the flag of the United States Congress. Demand that it performs its duty.

Just recently, in a hearing before the Senate, your senator and my Harvard classmate, Chuck Schumer, told Chairman Bernanke, “You are the only game in town.” I thought the chairman showed admirable restraint in his response. I would have immediately answered, “No, senator, you and your colleagues are the only game in town. For you and your colleagues, Democrat and Republican alike, have encumbered our nation with debt, sold our children down the river and sorely failed our nation. Sober up. Get your act together. Illegitimum non carborundum; get on with it. Sacrifice your political ambition for the good of our country—for the good of our children and grandchildren. For unless you do so, all the monetary policy accommodation the Federal Reserve can muster will be for naught.”

Amen!  Remember in November!


9.  The Magnitude of the Mess We're In.

Suppose you were offered the job of Treasury secretary a few months from now. Would you accept? You would confront problems that are so daunting even Alexander Hamilton would have trouble preserving the full faith and credit of the United States. Our first Treasury secretary famously argued that one of a nation's greatest assets is its ability to issue debt, especially in a crisis. We needed to honor our Revolutionary War debt, he said, because the debt "foreign and domestic, was the price of liberty."

History has reconfirmed Hamilton's wisdom. As historian John Steele Gordon has written, our nation's ability to issue debt helped preserve the Union in the 1860s and defeat totalitarian governments in the 1940s. Today, government officials are issuing debt to finance pet projects and payoffs to interest groups, not some vital, let alone existential, national purpose.

The problems are close to being unmanageable now. If we stay on the current path, they will wind up being completely unmanageable, culminating in an unwelcome explosion and crisis.

Yep.


10.  Doug Casey on the 'Worsening Storm,' QE3 and the Hard Assets Alliance.

At this point, everything the government is doing – and not just the US government but governments everywhere − is not only the wrong thing but exactly the opposite of the right thing. They're passing more laws, raising taxes, creating more currency and incurring more debt. They should be doing the opposite. We're currently still in the eye of the storm. Their actions guarantee that when we go back into the hurricane − the trailing edge of the hurricane − it's going to be much worse and will last much longer than what we saw in 2007 to 2009. I expect this time it's likely to be accompanied by high levels of retail price inflation.

. . .

There's simply no hope for any change without totally draconian measures. Of course, we are going to get draconian measures but they are going to be the kind that make things worse, not make things better.

. . .

The dollar is an I O U nothing on the part of a bankrupt government. It will reach its intrinsic value because the trillion and a half dollar deficits that they're running now – and it's actually more than that if you use accrual accounting as opposed to cash accounting as any business would do − can only increase. They'll fund the deficit by creating more dollars. Governments all over the world are doing the same thing, but it's much more serious for the US to destroy its currency than for any other country because the US dollar is, in effect, the world currency. By that I mean it's the actual de jure currency in at least three other countries, and the de facto currency in maybe 50 more. In addition, most of the central banks in the world have most of their assets in dollars. So if the dollar is wiped out, and I don't see how that can realistically be avoided at this point, it's going to be a worldwide catastrophe, not just a national catastrophe. So it's much more serious than most people think.

I daresay those articles will keep you busy for a while . . . although a hefty dose of antidepressants might be in order!

Peter