http://albertpeia.com/fedsetsupcrash2013.htm
‘Having pumped the system with
liquidity non-stop since the Crash of 2008, the Fed now realizes it’s in big
trouble and needs to manage down expectations of further stimulus.
As we noted earlier
this year, the Fed, while attempting to appear committed to endless money
printing via its QE 3 and QE 4 programs, was in fact decidedly split on whether
to commit to more as well as the risks inherent to additional QE. Indeed, the
Fed FOMC minutes indicate that some Fed members were concerned about whether QE
even worked as a monetary policy.
Below are the notes
from the Fed’s December 2012 FOMC minutes (the meeting during which the Fed
announced QE 4). I’ve added highlights to emphasize the shift in tone.
With regard to
the possible costs and risks of purchases, a number of participants
expressed the concern that additional purchases could complicate the
Committee’s efforts to eventually withdraw monetary policy accommodation, for
example, by potentially causing inflation expectations to rise or by
impairing the future implementation of monetary policy.
Participants
also discussed the implications of continued asset purchases for the size of
the Federal Reserve’s balance sheet. Depending on the path for the
balance sheet and interest rates, the Federal Reserve’s net income and its
remittances to the Treasury could be significantly affected during the period
of policy normalization.
Participants noted that the
Committee would need to continue to assess whether large purchases were
having adverse effects on market functioning and financial stability. They expressed a range of views
on the appropriate pace of purchases, both now and as the outlook evolved. It was agreed that both the
efficacy and the costs would need to be carefully monitored and taken into
account in determining the size, pace, and composition of asset purchases.
http://www.federalreserve.gov/monetarypolicy/fomcminutes20121212.htm
There are three key
implications here:
1) The
Fed acknowledged that QE causes inflation expectations to rise (red text)
2) The
Fed was divided on the efficacy of QE (green text)
3) The
Fed was not committed to employing QE forever despite its public declarations
to that effect (blue text)
This shift in tone
went largely unnoticed by the media. However, the implications are very
serious. By way of explanation, let’s quickly review the Fed’s primary moves in
the post-Crisis era.
In 2008 the Fed had
its back against the wall in terms of saving the system. Since that time every
new Fed intervention (verbal or monetary) has been aimed at propping up the Too
Big To Fail Banks and pushing the stock market higher.
The first wave of
this came via QE 1 and QE 2 in which the Fed collectively monetized nearly $2
trillion in assets. However, once QE 2 ended in 2011, we noted the Fed began to
realize that it could get the “positive” effects of additional stimulus (higher
asset prices) without actually having to engage in more stimulus, simply by
issuing verbal interventions at critical moments.
Thus, between QE 2’s
end (June 2011) and the start of QE 3 (September 2012), the Fed became
increasingly reliant on verbal intervention as opposed to actual money
printing.
During this period,
any time the markets began to dip, a Fed official, usually an uber-Dove such as
NY Fed President Bill Dudley or Chicago Fed President Charles Evans, would
indicate that the Fed was ready to act aggressively if need be and VOOM the
markets would take off again.
This changed in May
2012, when the entire financial system began to implode courtesy of Spain (see
our issue The “C” Word for an explanation of this). At that time the
Fed switched back into aggressive monetary policy mode, first promising to
provide more QE before launching QE 3 in September 2012 and then QE 4 in
December 2012.
Unlike previous QE
programs, which had definitive timelines, QE 3 and QE 4 were open-ended,
meaning that they can continue forever. This was the Great Global Rig we
referred to earlier this year. And while it did push the stock market
higher, it did next to nothing for the US economy.
Which brings us to
today. The US economy is contracting sharply again (without the massaged data
inflation, real GDP growth would have been -1% last quarter) right as stocks
close in on new all-time highs (the S&P 500 and Dow) or have already broken
to new highs (the Russell 2000).
This is happening at
a time when earnings are falling (despite companies booking profits), the
economy is slowing, and stocks are closing in on all-time highs.
In plain terms, the
stock market has become totally detached from economic realities. There is a
term for when asset prices become detached from fundamentals, it’s called “A
BUBBLE.”
THIS is the reason the Fed is
beginning to shift its tone. It realizes it has blown another bubble and that
we’re likely headed for another Crash. And this time around the Fed will be
totally out of ammo to stop it. Unlike 2008 which was just a warm-up, this will
be the REAL CRISIS featuring full-scale systemic failure.
So if you have not
already taken steps to prepare for systemic failure, you NEED to do so NOW.
We’re literally at most a few months, and very likely just a few weeks from the
economy taking a massive downturn, potentially taking down the financial system
with them. Think I’m joking? The Fed is pumping hundreds of BILLIONS of dollars
into financial system right now trying to stop this from happening.
I’ve already alerted
Private Wealth Advisory subscribers to 6 trades that
will all produce HUGE profits as this mess collapses.
We’ve also taken
steps to prepare our loved ones and personal finances for systemic risk with my
Protect Your Family, Protect Your Savings, and
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With a total of 20
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1) how to prepare
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2) which
banks to avoid
3) how much
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4) how much
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5) how much
food to stockpile, what kind to get, and where to get it
And more…
I can do the same
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To take out an
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safely…’
Best Regards,
Graham Summers