Monetary Insanity

Quote from AAAintheBeltway:

Mav,

Isn't it all tied to the dollar? As long as the dollar isn't tanking, the Fed can contiue to monetize the debt. I can even see an argument that we are better off with more dollars out there than more bonds. Bonds have to be paid off.

The problem, as you well know, is that at some point the dollar does tank. We can only depend on the flight to "quality" to last for so long. Either europe gets its act together, ok that is unlikely, Germany withdraws and the new DM takes over, or China decides it's had enough and pushes the yuan as the new reserve currency. Then we are toast, and like you say, it will probably happen quickly.
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I don't know

What is the point of an exchange market when everyone has freshly printed dollars? Nobody in their right mind holding dollars will want a new reserve because that would negate their 'wealth'. The only apparent alternative would be the Euro, what a joke. China isn't going to just flush their dollars down the toilet.

Let's say the whole world wants to keep playing extend and pretend forever and China keeps the rate pegged. At some point all that exported inflation will have to come home because they are aren't buying bonds anymore. The stampede for what remaining assets have value might be enormous... is the bernanke really hoping people will want that huge steaming pile of shit known as the fed balance sheet? madness

The Bernanke and the entitlement liberals have trapped us. The bernake wants to keep pretending that monetary games are a substitute for a real economy and the democrats want to keep pretending we can afford the welfare state. Fiscal insanity meets monetary insanity- perfect storm for the death spiral.

Make no mistake, QEx is now QE until death do us part.
 
copy-n-paste I know, but relevant, and seriously depressing

http://money.cnn.com/2012/12/14/news/economy/federal-reserve-unemployment/index.html?iid=Lead


The Federal Reserve predicts it will keep stimulative policies in place until the unemployment rate falls to 6.5%. But just how many jobs will it take to get there?

As of November, the unemployment rate was 7.7%. In order to drop to 6.5% immediately, it would require 1.9 million jobs to be created right now. Just like that. Bam!

Obviously, that's impossible. The economy is chugging along slowly, and with job growth averaging around 150,000 each month, that's an entire year's worth of hiring.

But the Fed expects it will take longer than one year to get to its goal. That's because, once you factor in population growth, the economy will need far more jobs to be added than the current pace.

To get there in a year, 3.2 million jobs have to be created. That's roughly 270,000 jobs each month.

Extend that out to the end of 2014, and the economy would need 5 million jobs, or 200,000 jobs a month, according to David Rosenberg, chief economist and strategist for Gluskin Sheff & Associates.....

But hiring at that rate is unlikely. That's exactly why the Federal Reserve predicts it will take until some time in 2015 to bring the unemployment rate down to 6.5%.

Rosenberg thinks even that is optimistic though. If job growth continues at its current pace of 150,000 jobs a month, it could take until 2018, he said.

All of these predictions factor in population growth but hinge on one key metric: the economists are assuming 63.6% of the adult population will be participating in the labor force, meaning they either have a job or are looking for one.

The unemployment rate could fall more quickly if more workers drop out of the labor force, which happens when people retire, go to school or give up on the job market.
In that case, the Fed would probably not view a falling unemployment rate as a good thing.

Fed Chairman Ben Bernanke made clear Wednesday, that although the central bank announced the 6.5% threshold, it "by no means puts monetary policy on autopilot." The central bank plans to consider "a range of labor market indicators," he said.
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I think Obama and the Dems have backed Bernanke into a corner. He knows things are just a hairs breath from collapsing and that the Democraps mistakenly don't believe that more debt will cause a problem.

So, what choice does he have? Stop the QE's and let interest rates rise and precipitate the collapse or keep printing and hope some sanity shows up in Washington before inflation and massive currency devaluation does. He keeps telling the markets that he won't let rates go up for years to try to provide some certainty for business since Obama and the Dems won't with taxes, healthcare and regulatory policy all in flux.

Right now Asia is the only threat to dollar devaluation. But China wants to stay pegged to the dollar. So, all is in a precarious state of stability. It's just a steady march to the day of reckoning unless Obama changes his ways in a big way and pronto.
 
Quote from pspr:

I think Obama and the Dems have backed Bernanke into a corner. He knows things are just a hairs breath from collapsing and that the Democraps mistakenly don't believe that more debt will cause a problem.

So, what choice does he have? Stop the QE's and let interest rates rise and precipitate the collapse or keep printing and hope some sanity shows up in Washington before inflation and massive currency devaluation does. He keeps telling the markets that he won't let rates go up for years to try to provide some certainty for business since Obama and the Dems won't with taxes, healthcare and regulatory policy all in flux.

Right now Asia is the only threat to dollar devaluation. But China wants to stay pegged to the dollar. So, all is in a precarious state of stability. It's just a steady march to the day of reckoning unless Obama changes his ways in a big way and pronto.
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inflation is the other threat to dollar devaluation, and it's probably the larger risk

Bernanke has a choice, he just won't do it. He has now officially jumped into bed with the democrats by funding their spending with QE and tying QE to an unemployment rate, however dubious that rate is.

The logical course of action for a nation in our position is to cut entitlements just like the Swedes and Canadians did, the official democrat line is no way are we doing that.
 
Quote from jem:

I believe the fed will keep interests rate low until its owner banks... have become solvent.

I am no longer sure... because my two best suppliers of info are doing other things... but when they last knew... the big banks still had massive exposure to commercial real estate. Which is still down pretty big.
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QE turns out to be a way to give government money to banks, I agree. But the fees they collect for taking fed money are not really what I'm talking about. The cash does it make it out into the economy in the form of gov't deficit spending. Ok but deficit spending is not producing results...

Secondly when you bid your own horse at the auction, that trick can only work if you are a small part of the market. The fed balance sheet is probably going to be near $5-7T, with about half in mortgage backed securities, when and if this ends. They are the market, the balance sheet cannot be unwound. Then what? Cash will be trash by then.

We will all pay dearly for this
 
Quote from jem:

I believe the fed will keep interests rate low until its owner banks... have become solvent.

I am no longer sure... because my two best suppliers of info are doing other things... but when they last knew... the big banks still had massive exposure to commercial real estate. Which is still down pretty big.
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I agree. The Fed does what the member banks want, not the other way around. The "regulation" that it supposedly does of the banks is a redirection from the reality. History proves they do nothing of the kind. To paraphrase: "Are you going to believe the Fed, or your own eyes?"

So the game is to save the Big Banks. To do that, they will flush the economy down the toilet - but if you notice, it is the Big Banks that are benefiting the most from the flush. And like in any crime, you first look to who benefits when searching for motive and opportunity.
 
Quote from MarketMasher:

I agree. The Fed does what the member banks want, not the other way around. The "regulation" that it supposedly does of the banks is a redirection from the reality. History proves they do nothing of the kind. To paraphrase: "Are you going to believe the Fed, or your own eyes?"

So the game is to save the Big Banks. To do that, they will flush the economy down the toilet - but if you notice, it is the Big Banks that are benefiting the most from the flush. And like in any crime, you first look to who benefits when searching for motive and opportunity.
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exactly.
 
Quote from Redneck:

Monetizing debt – stupid beyond believe

I believe there is no correlation between QE and unemployment

The banks end up receiving the $’s onto their books – and not lending it out
RN
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I think they borrow the money from the Fed then lend it back to the Fed for a slightly higher rate for a risk free profit with the Fed's money.

Can't beat a deal like that!
 
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