When will Fed cut QE life support?

SUBHEAD: Well we learned today it won't be any time real soon. The trillion dollar a year continues to flow to banksters.

By Brandon Smith on 18 September 2013 for SHTF Plan -

Image above: A young and muscled Ben Bernanke shows of the results of QE steroids for economy. From (http://www.charlotteobserver.com/2013/07/19/4174831/siers-cartoon-bernanke.html#.Ujpv0LwptIY).

It is undeniable that America is thoroughly addicted to fiat stimulus. Every aspect of our economy, from stocks, to bonds, to banks, and by indirect extension main street, is now utterly dependent on the continued 24/7 currency creation bonanza. The stock market no longer rallies to the tune of increased retail sales, growing export markets or improved employment expectations. In fact, “good” economic news today is met with panic and market sell-offs! 

Why? Because investors and banks still playing equities understand full well that any sign of fiscal improvement might mean the end of the private Federal Reserve’s QE pajama party. They know that without the Fed’s opiate-laced lifeline, the economy dies a fast and painful death.

All mainstream economic news currently revolves around the Fed, as pundits clamor to divine whether the latest signals mean the free money will flow, trickle, or dry up.

Most expect the central bank to make an announcement today on the details of its reduction in stimulus initiatives. Generally, the Fed does not have a tendency to slip information to the media on the possibility of a policy change unless they plan to follow through. 

Every bailout and QE announcement over the course of the past five years has been preceded by weeks and even months of “rumors” acclimating the mainstream and the markets to the idea of each action long before it was ever implemented. If the Fed avoids clarity on the taper in the coming week, I expect that they will still assert stimulus cuts before the end of this year.

Certain developments, though, are giving false hope to the markets that the stimulus fantasy will go on forever. The resignation of Larry Summers from the “running” for Fed Chairman (as if Obama isn’t being told exactly who he is to pick for the position) has so far put a dash of cheer into the Dow Jones. Strangely, investors seem to believe that without Summers, continued quantitative easing is assured. The reality is that the decision to cut stimulus has likely already been long established and the face of the new chairman will have little relevance.

The idea of the Fed being divided by “hawks” and “doves” is absurd propaganda designed to give the public a false impression that central bank decisions follow some kind of democratic course. Central banks are highly centralized and highly coordinated corporate entities, not governmental councils prone to “debate.” And like any corporation, it is certain that decisions are handed down from the top of the pyramid in totalitarian fashion.

Who is at the top of the pyramid when it comes to the Fed? Only a FULL audit would reveal the truth, and a full audit has never been enforced in the 100-year history of the bank (the only meaningful partial audit ever conducted examined the TARP bailouts, uncovering over $16 trillion in crazed currency printing in that program alone). The point is, the Fed is not a public institution (nor “quasi-public”), it is private, and this private bank is now dominating every miniscule fluctuation in the health of our financial system, openly.

Two questions loom like a black cloud over the stock exchange picnic:
  1. Will the Fed cut stimulus soon, and if so, by how much?
  2. If the Fed continues stimulus, how long can it last before the dollar’s value is decimated?
As I have been saying since the bailouts began in 2008, the Fed has conjured a perfect Catch-22 scenario for the U.S. economy. If the Fed cuts QE while conditions remain tenuous, the stark reality that we have been living on borrowed time will be revealed. If the Fed continues stimulus the catastrophe will take longer to unfold. But eventually, foreign creditors will finish their strategy of dumping the dollar in bilateral trade and our economy takes a dive anyway. Cancel stimulus and we croak. Continue stimulus and we croak.

Obviously, given the total dependency the investment world has shown towards QE, the markets will plummet without stimulus. Some predict a “manageable” break in stocks, while others predict freefall. In any case, those who think QE reductions are already priced into the markets are fooling themselves. 

Keep in mind that before QE3 was announced in September of last year, the Dow was struggling due to a lack of any credible recovery signals within the system. Nothing has changed since. There are no new developments that give clear indication that our economy is any better off than it was a year ago, let alone five years ago.

One thing I have learned in my time as an analyst is to never underestimate the power of blind human optimism. With a QE taper announcement this week, it could take months before the general public and the investment sector finally grasp the fact that the carpet has been pulled out from under them. The slide of the Dow would be slow, but cumulative.

There are many people out there who actually believe the recovery hype being promoted in the mainstream, and I have to say, things are getting a little schizophrenic. Some pundits are focusing on negative data because they think it will influence the Fed to keep QE alive. Other organizations appear to have a different agenda. Ratings and analytic firm Moody’s, for instance, has recently released a report claiming that all risk of returning recession has been essentially eliminated in the U.S.

This is, of course, news to most of us in the field of alternative economics, being that according to the fundamentals, we NEVER LEFT the original recession which officially began at the end of 2007. I would also point out that Moody’s was one of the same agencies that played a considerable role in the derivatives collapse. Would you trust a company that stamped every toxic derivative it examined a few years back with a AAA rating to tell you what shape our financial structure is in today?

Now, maybe it’s the “conspiracy theorist” in me, but I find the release of this Moody’s report rather suspicious, just as I have found the majority of the Labor Department’s overly optimistic (skewed) unemployment reports suspicious. It is highly likely that these fabricated numbers hailing green-shoots recovery are being released in order to give the Fed false precedent to begin cutting stimulus while distancing themselves from blame over the eventual catastrophic results. In fact, I guarantee that the Fed will cite reports like those produced by Moody’s in order to vindicate taper actions.

So, why would the Fed use erroneous data to justify QE cuts today (or the next few months), knowing that our system is addicted to fiat and will shrivel like a raisin in the sun without it? Here’s the thing: The world is changing rapidly, and the course of the next decade (if not the next century) may be decided before this year is out.

The Syrian crisis is far from over. In fact, Russian diplomatic measures have only raised the stakes. Russia’s overt involvement proves beyond a doubt that any military action on the part of the U.S. will create escalation. Both the U.S. and Israeli governments have stated openly and unequivocally that their goal is not just chemical disarmament, but the toppling of Assad. Russia has recently position three more ships to their fleet near Syria, to double the amount of U.S. ships in the region. The conflict is no longer only about President Barack Obama vs. Bashar Assad.

Now, it is the U.S. vs. Russia, Syria, Iran, China, etc. If diplomacy fails (the White House and Israel appear intent to ensure it fails), the dire results will be clear to the majority before this winter is over.

Even more disturbing is the build up towards the final debate on the U.S. debt ceiling. Barack Obama has now stated that he will NOT negotiate with Republicans on the terms of an increase in the level of allowable national debt, meaning, it’s his way or the highway. Republicans have responded with the threat of government shutdown. Perhaps this is yet another coincidence, but the Fed’s possible decision to taper QE perfectly parallels with the government debate over increased federal spending.

Of course, if the government reaches an impasse over debt, the call for a considerable portion of Fed stimulus ends. On top of that, the uneducated public will be utterly confused as to who is actually responsible for the gridlock, the fed or the politicians (hint – they are BOTH responsible).

There are many who believe that neither the government nor the Fed will ever willingly stand in the way of endless fiat creation. However, if the goal is to kill the dollar’s world reserve status quickly, or to manipulate the masses into demanding further Fed action, a taper of QE makes perfect sense in the mid-to-long-term.

SEC regulators have called for the institution of “exchange kill switches”, which will be finalized over the course of this winter. A recent Nasdaq shutdown caused by what regulators label a “software glitch” is being used as the excuse for this centralized kill option which will remain in the hands of… nobody knows yet. I would note though that a streamlined kill switch option for stocks would be useful in the event that a market crisis occurs and the establishment wishes to control how much value in equities is lost from day to day.

China has recently announced that a “second economic revolution” will be set in motion this coming November. While the details of this policy shift are not yet certain, the Chinese have established that they plan to move away from export reliance and place more energy into consumer growth. This means FAR less interest in the U.S. consumer and the U.S. dollar as a world reserve currency.

Ben Bernanke’s term as Fed Chairman is set to end in January of 2014, and it is my observation that detrimental policy changes commonly take place while the responsible organizations are in transition, or just past transition. Any debilitating consequences of QE cuts can be placed at the feet of Ben Bernanke, while the Federal Reserve as a whole remains shielded from reproach. And why should he care? Old Ben will be sitting on a beach in the Caymans sipping mojitos while the rest of us are suffering through dollar devaluation and market chaos.

 Also, a very important question is being wholeheartedly ignored lately; who, exactly, will take the Fed’s place as the world biggest buyer of U.S. debt (and U.S. stocks) once the Fed reduces or cuts QE? The fact is, there is no foreign buyer that will fill this void. In the end, the “taper”, regardless of how quickly it is implemented, will eventually lead to financial tragedy within our nation.

In the meantime, the Syrian crisis continues to quietly grow, and the U.S. may be in the midst of global economic war, or a shooting war in the near future, drawing all attention away from the central banks as the culprits behind America’s fiscal demise.

Ultimately, QE cuts will be detrimental because they are MEANT to be detrimental, and this is in pursuit of one of only two possible goals: Either the Fed is seeking to deliberately undermine the U.S. economy in order to set in motion a final collapse, or, the Fed wants to create just enough desperation in order to force the American people to beg for more stimulus, and thus force us to accept partial responsibility for the eventual inflationary demise of the dollar.

In either case, the Fed’s tactics serves one purpose – to secure the globalization of America by any means necessary. A wounded America is more liable to embrace centralization and abandon

sovereignty than a strong America. I’ll let George Soros explain one more time just to drive the point home:

Video above: George Soros says China must be part of the New World Order, From (http://youtu.be/tBO34qcnoqM).

The process of globalized economic and political governance has been a long and carefully planned one, and the existence of a prosperous U.S. is not a part of the program. There have been many events over the past several decades that we can look back on objectively and understand the role they played in the destruction of the U.S. as a sovereign nation.

At the edge of the Federal Reserve’s 100th anniversary, it is vital that we see the current developments for what they really are – history changing, in a fashion so violent they are apt to scar America forever.

• You can contact Brandon Smith at:  brandon@alt-market.com

Fed Refrains From QE Taper
SUBHEAD: Will continue buying US bonds at a rate of $85 billion a month.

By Joshua Zumbrun on 18 September 2013 for Bloomberg News -   

Image above: Cartoon of Bernanke waiting for recovery to discontinue QE. From (http://www.charlotteobserver.com/2013/07/19/4174831/siers-cartoon-bernanke.html#.Ujpv0LwptIY).

The Federal Reserve unexpectedly refrained from reducing the $85 billion pace of monthly bond buying, saying it needs more evidence of lasting improvement in the economy and warning that an increase in interest rates threatened to curb the expansion.

“Conditions in the job market today are still far from what all of us would like to see,” Chairman Ben S. Bernanke said at a press conference today in Washington after a two-day meeting of the Federal Open Market Committee. “The committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth.”

U.S. stocks rose, sending the Standard & Poor’s 500 Index to a record, while Treasuries and gold rallied as Bernanke stressed that the pace of bond buying would be dependent on economic data, and the Fed has no predetermined schedule for tapering the purchases that have pushed its balance sheet to $3.66 trillion.

“There is no fixed calendar schedule, I really have to emphasize that,” Bernanke said. “If the data confirm our basic outlook” for growth and the labor market, “then we could begin later this year.”

The S&P 500 climbed 1.2 percent to 1,725.48 at 4:02 p.m. in New York. The yield on the 10-Year Treasury note dropped 15 basis points to 2.70 percent. Gold for immediate delivery jumped $55.61 to $1,366.25 an ounce. Oil rose more than 2.5 percent.

“It looks like the Fed has done a major reset in terms of expectations on what they need to see before they start to taper,” said Chris Rupkey, the chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
Rate Outlook

The central bank, in a statement, left unchanged its outlook that its target interest rate will remain near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.

Bernanke added in his press conference that the first interest-rate increase may not come until the jobless rate is “considerably below” 6.5 percent.

“Even after asset purchases are wound down,” Bernanke said, the “Fed’s rate guidance and its ongoing holdings of securities will ensure that monetary policy remains highly accommodative, consistent with an aggressive pursuit of our mandated objectives of maximum employment and price stability.”

Bernanke said the Fed could also specify that it would not tighten if inflation was too low. “An inflation floor is certainly something that could be a sensible modification or addition to the guidance,” he said.
Forecasts Reduced
Fed officials today reduced their forecasts for economic growth this year and next. They forecast U.S. gross domestic product to increase 2 percent to 2.3 percent this year, down from a June projection of 2.3 percent to 2.6 percent growth.

“They feel the risks are too great to taper now, and the economy is not growing as fast as they had hoped,” said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina. “They are going to take a few more months and maybe start in December.”

Economists had forecast the FOMC would dial down monthly Treasury purchases by $5 billion, to $40 billion, while maintaining its buying of mortgage-backed securities at $40 billion, according to a Bloomberg News survey.

Fed officials were spooked by an increase in bond yields that followed Bernanke’s comments in May that the Fed may step down the pace of purchases in the “next few meetings,” said Scott Brown, chief economist for Raymond James & Associates Inc. in St. Petersburg, Florida.
Treasury Yields
The yield on the 10-year Treasury note climbed almost 1 percentage point through yesterday since Bernanke’s May 22 comments, with yields on Sept. 6 exceeding 3 percent on an intraday basis for the first time since July 2011. That compares with 1.61 percent on May 1, and a record-low 1.38 percent in July 2012.

“They were really surprised back in May and June by the market’s response to the initial talk of tapering,” Brown said. “The Fed’s view was that it’s the amount of asset purchases, not the monthly pace that matters. In that case, it doesn’t matter whether they start tapering in September or December, but the markets decided it does, so it does matter.”

“We’re seeing the reaction that bond yields are coming down, and that’s got to be helpful for their outlook.”

Kansas City Fed President Esther George dissented for the sixth meeting in a row, repeating that the policy risks creating financial imbalances.

Higher interest rates have started to take a toll on housing, one of the drivers of the expansion. A Commerce Department report today showed that builders began work on fewer U.S. homes in August than projected by economists.
Housing Starts
Housing starts rose 0.9 percent to a 891,000 annual rate, following the prior month’s 883,000 pace that was weaker than previously estimated. The median estimate of 83 economists surveyed by Bloomberg called for 917,000. Permits, a proxy for future projects, dropped more than forecast.

The average interest rate on a 30-year fixed home loan was 4.57 percent last week, compared with a record-low 3.31 percent in November 2012, according to Freddie Mac. The rate soared 35 percent in 10 weeks ended July 11, the most ever for a comparable period, the data show.

Bernanke, who is nearing the end of his second term as chairman, has orchestrated the most aggressive easing in the Fed’s 100-year history, pumping up the balance sheet from $869 billion in August 2007 and holding the main interest rate close to zero since December 2008.
Leading Candidate
Vice Chairman Janet Yellen, a supporter of Bernanke’s policies, is the top candidate to succeed him after former Treasury Secretary Lawrence Summers withdrew from contention, according to people familiar with the process.

The Fed’s asset purchases have fueled gains in asset prices. Counting today’s increase, the S&P 500 Index has climbed 23 percent since Aug. 31, 2012, when Bernanke made the case for further monetary easing at the central bank’s annual forum in Jackson Hole, Wyoming.

Officials have also credited the program, which began last September, with reducing the unemployment rate, which is the lowest since December 2008. Officials have said that they would maintain bond purchases until the labor market has “improved substantially.”

At the same time, recent data on payrolls, housing and retail sales have lagged behind economists’ forecasts.

Jobless Rate
U.S. companies created 169,000 jobs last month, fewer than economists projected, and increases in the prior two months were revised down. The unemployment rate fell as workers left the labor force. August and July were the weakest back-to-back months for payroll gains in a year.

Employment growth has nevertheless improved since the bond purchases began. The U.S. has added an average of 160,000 jobs over the past six months, compared with 97,000 originally reported for the half-year before the Fed decided to start the third round of purchases a year ago.

Faster employment gains may be needed to spur the consumer spending that accounts for 70 percent of the economy. Retail sales last month rose less than forecast, with purchases climbing 0.2 percent, the smallest gain in four months, the Commerce Department reported last week.
Bright Spots

Homebuilding and manufacturing remain bright spots for the economy.

Companies such as Hovnanian Enterprises Inc. have said the recent rise in mortgage rates will temporarily restrain the housing recovery rather than end it.

Homebuilder confidence held this month at the highest level in almost eight years, even as mortgage rates rose. The National Association of Home Builders/Wells Fargo confidence index registered 58 this month, matching August’s revised reading as the strongest since November 2005.

Such optimism has found fuel from a recovery in home prices that pushed up the S&P/Case-Shiller (SPCS20Y%) index of values in 20 cities by 12.1 percent in June from a year earlier.

Factories turned out more cars, appliances and home furnishings in August, propelling the biggest increase in U.S. industrial production in six months. Output at factories, mines and utilities rose 0.4 percent after no change the prior month, the Fed reported this week.
Auto Sales
Cars and light trucks sold last month at the fastest annualized rate since 2007, according to researcher Autodata Corp. Sales at General Motors Co., Ford Motor Co. (F), Toyota Motor Corp. and Honda Motor Co. all exceeded analysts’ estimates.

Texas Instruments Inc., the largest maker of analog chips, is among companies with a brighter outlook as global markets stabilize.

“Orders continue to be quite solid” this quarter, Chief Financial Officer Kevin March said at a Sept. 11 conference. “We continue to see strength in three of the four regions of the world,” with Asia, Japan, and the Americas expanding, he said.

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