Q.E. Over Quality
Everything is in the right place today, at least in the headlines. It is rare for the US and the world to acknowledge the way things really are, for today quantitative easing is in the headlines in the form of QE Forever. The Fed has announced perpetual QE until the economy gets better and so it is now officially acknowledged that the foundation of the US economy is not gold, as it was before 1971, it is not “the economy,” as Nixon said, but rather it is quantitative easing in the insane hope that this time around it will spur real job growth.
But it will not. All quantitative easing will continue to do is the same thing it did all along: increase the quantity of Federal Reserve Notes with no regard for their quality as the entire system evaporates making room for an entirely new overlay of the global economic superstructure. And, as the printing press gets turned on turbo-speed, one can be sure that money will run away from the Fed Note and derivatives right into, first and foremost, gold and silver. The precious metals complex today responded in the expected way.
Gold looks the same it did during QE1, having moved both days about $60. Percentage wise, however, the move in 2009 is greater:
Silver also had a big day today, moving approximately 4%. The sorts of days silver experienced in the days leading up to $49.80 in April 11, during which silver consistently moved $1, can be expected.
Every millisecond, every second, minute, everyday there is quantitative easing. In this unconventional economy unconventional policies are the perpetual status quo. Today, the Federal Reserve announced another QE program, QE III, and so gold and silver both responded with 2% and 5% gains, respectively. But, these gains are illusory as is the quantitative easing program. Quantitative easing is now just the way things are in perpetuity as is commodity appreciation. Every single day, gold and silver should be skyrocketing higher. However, for now we have yet to enter into a new economic paradigm whereby when quantitative easing fills the headlines the paper markets fall precipitously based on the underlying understanding that that which all stocks and derivatives are priced by, the Fed Note, will continue their decline. Moving on, we can therefore expect that, with the stock market near highs, in a future selloff gold and silver will not be immune.
Ben Bernanke implied the perpetual nature of this QE episode: “We’re looking for ongoing, sustained improvement in the labor market. There’s not a specific number we have in mind. What we’ve seen in the last six months isn’t it.”
But, the US jobs market is in disarray. Not only have the last six months been a disappointment, but so to has the entire period in the wake of the 2008 banking collapse. The economy never got better, the propaganda just dug in and pushed that meme. US incomes are in utter collapse, as employers take advantage of workers in a sour economy, paying them less and having them work fewer hours. Accommodative monetary policy will continue “for a considerable time after the economic recovery strengthens,” with short-term rates at or below 0.25 percent through mid-2015.
All the same problems from QE 1 are mounting. As Paul Krugman noted in early 2009:
The problem may come when the economy recovers, and inflation starts to become a problem rather than a hoped-for outcome. Basically, there will come a time when the Fed wants to withdraw that extra $1 trillion of money it created. It will presumably do this by selling the bonds it bought back to the private sector.
But here’s the rub: if and when the economy recovers, it’s likely that long-term interest rates will rise, especially if the Fed’s current policy is successful in bringing them down. Suppose that the Fed has bought a bunch of 10-year bonds at 2.5% interest, and that by the time the Fed wants to shrink the money supply again the interest rate has risen to 5 or 6 percent, where it was before the crisis. Then the price of those bonds will have dropped significantly.
Back then, the Krugenator wanted quantitative easing. He wanted to go into it with “eyes wide open.” But, that’s impossible. The pure fiat world has never had such an overt crisis papered over for so long. We are entering unknown waters and the multi-faceted pressures being put on the superstructure can only mean one thing: decay and destruction.
There is no quality in the markets today. Just quantity. What’s more, this quantity is increasingly being overwhelmed by paper quantity, not goods and services. It’s a vacuum of currency quantity, and everything will be sucked into the paper vortex and spit back out in a new array.