My Dear Extended Family,
Lan has written a long article that I ask you to please to read. The message it carries with points and exact figures screams that regardless of who is elected as president, the banker or the socialist, nothing can change.
As I have assured you for many years, QE to infinity is not a choice, but an absolute self-evident necessity without which the Western economic world will immediately collapse as governments go into bankruptcy, leading majors businesses that will follow quickly.
Nothing has changed. Nothing can be changed. Nothing will change no matter who is in the hot seat known as the Presidency of the USA.
Whomever is elected will be the Bag Man of a colossal monetary event. Any opinion to the contrary is juvenile nonsense uttered by political morons.
Please read all of this. Do not pass over a misunderstood word. Stop and define it. You will know you have passed over a misunderstood word by immediate fatigue while reading. Once you define the word you will feel as if you had a cold shower energy wise versus the previous fatigue. This is one of the greatest contributions the E.R. Hubbard made to society. It can turn a moron into a genius as long as the moron can read. Everyone I am writing to can understand all of this if you read these missives with a bookmark to a financial dictionary.
You have no excuse of saying you are not a good student. You have every right to be a lazy student. The system only exists because of the laziness of the population. If you wish to rise up, then do the work and pull yourself up first. You will not get pablum here. You will get the truth here, and the ability to fully understand it as truth, but you must do the work which is called clearing words.
Quantitative Easing 0-1-2-3∞ & The Federal Reserve’s Love Affair with its Banks and Mortgage Bonds: Levitating The Black Hole
“A black hole is a region of spacetime where gravity prevents anything, including light, from escaping… Around a black hole there is a mathematically defined surface called an event horizon that marks the point of no return.”—Wikipedia
To much frenzied media coverage, the Federal Reserve Bank announced a third round of quantitative easing “QE 3∞“on September 13, 2012. The Federal Reserve will essentially print unlimited quantities of dollars to purchase agency mortgage bonds and maintain nominal interest rates targeted at 0% (“ZIRP”) to keep borrowing costs reasonable for its member banks, among others.
“QE 3∞” in 2012 is the unlimited version of “QE 1” in 2009 following the banking and financial system crisis in September 2008. What does this mean?
QE is simply the printing of dollars in paper or digital form by the quasi-private Federal Reserve Bank, as the Federal Reserve does not have this money. In QE 1, the Federal Reserve Bank printed $1.25 trillion to purchase agency mortgage-backed securities (MBSs). Agency MBSs are mortgage bonds (akin to a mutual fund filled with mortgages, peoples’ homes) issued and guaranteed or held by the quasi-private Fannie Mae and Freddie Mac.
On a practical level this means the Federal Reserve Bank printed $1.25 trillion with a computer stroke and became the owner or recipient of homeowners’ mortgage payments. The Federal Reserve will do this on an unlimited basis in QE 3 going forward, as it states ‘to foster maximum employment and price stability’.
What is it about the Federal Reserve Bank’s love affair with mortgage bonds that the media and the Federal Reserve will not speak of?
I. QE0: Insolvency of the Largest Banks in the Federal Reserve System
Let’s pause for a moment. The most significant QE was not even called QE. It was the suspension of the Financial Accounting Standards Board’s (FASB) mark-to-market accounting rule 157 in April 2009. The rule required banks to value assets on their balance sheets at current market price or fair value, but since 2009, became what the banks hope it is worth or what they paid for it.
Doing so helps insolvent banks avoid the appearance of insolvency by not having to write-down the amount of losses on assets, such as mortgage bonds, assuming there is a willing buyer (There isn’t really). Private sector financing for the housing market through demand for private label MBSs, which are mortgage bonds backed by mostly subprime mortgages reincarnated as prime issued and sold by the largest banks, collapsed since fall 2008.
Let’s give this FASB suspension of mark-to-market accounting event a name, QE0 , to mark the point of no return in April 2009 about six months after the banking and financial collapse in September 2008.
Following the collapse, lawmakers in the U.S. House of Representatives lined up to threaten FASB in a series of hearings to suspend mark-to-market accounting, as Representative Michael E. Capuano (D-Mass.) warned FASB’s chairman in March 2009: “Do not make us tell you what you have to do.” (Transcript of the U.S. House of Representatives Mark-to-Market Hearing, March 12, 2009). The American Bankers Association, Citigroup, and the Bank of New York Mellon Corp., the world’s largest custodian of financial assets, also pressured for the rule change.
[On a side note: MIT finance professor-CBO chief economist revised my memo to say that assets may already fully reflect market values. After I was fired I learned that MIT professor called by the U.S. President to CBO in 2009 has a CBO economist sit on FASB. This CBO economist and CBO Director Elmendorf are part of the Hamilton Project at the Brookings Institution. Robert Rubin is the project’s founder and Dr. Lawrence Summers, once chief advisor to the U.S. President, sits on its Advisory Council to promote economic growth and health care. Former Federal Reserve Bank Chairman Alan Greenspan, Robert Rubin, and Lawrence Summers were instrumental in the proliferation of derivatives in the late 1990s. ]
Let’s look at a few simple charts. What does QE0 FASB look like for the largest banks?
Voodoo Assets and Liabilities Chart 1:
From Voodoo Chart 1, was there a banking and financial crisis in 2008 that froze global markets? From the crisis in fall 2008 to 2009, there is no change between assets and liabilities! No change, for what has been considered the worst banking and financial crisis in a century (a few?).
Bank assets net of liabilities or net worth look incredible during a time when home prices dropped 25% to 65% (e.g. Arizona, Nevada, California, Florida) nationwide, the labor force participation rate set back 30 years coupled with an unprecedented rise in foreclosures, whose mortgages back $7 trillion or so mortgage bonds of the largest banks and Fannie Mae and Freddie Mac that failed in fall 2008. (The LFPR is another basic, standard measure of the employment picture that is less prone to voodoo adjustments. The LFPR is the number of people in the workforce between 16-65 years old divided by the total 16-65 year old population count. It excludes the military and the institutionalized population, i.e. people in prison.)
Let’s take this further for a bird’s eye proxy view of how voodoo the numbers may be. The Federal Reserve Bank data shows the residual “equity” or net worth of banks after all liabilities are paid to be a positive $1.5 trillion in its latest release as shown in the chart. Suppose we compare the banks’ numbers to the market or public consensus of the banks’ equity value. This would be the market capitalization, a measure heavily dependent on the market price of the bank stock that is almost always higher than the equity value. The largest handful of banks hold about three-quarters of the nation’s banking assets, but let’s expand that to the10 largest banks.
The Federal Reserve Bank reports a positive $1.5 trillion in residual banks equity or positive net worth – the largest banks account for most of this – but the market consensus (market capitalization) indicates that figure to be about $800 billion or roughly 50% lower. This percentage falls in the ballpark of asset overvaluation or understatement of liabilities found among banks that have been allowed to fail.
The ‘market consensus’ market capitalization figure is assisted by a levitated stock market (ex. 401k(s)/retirement plans) that rose after the FASB mark-to-market rule was suspended and remains in place since April 2009. It is unclear if the system can withstand a return to reality-based accounting, as a few hundred billion dollars or trillion dollar difference will be rather modest compared what happens when over $1,000 trillion in notional derivatives are set off. This notional money does not exist until it becomes real when banks and financial institutions fail. (There is a small fraction of derivatives that is used to hedge or mitigate risk with real assets and capital behind them.) For reference, world GDP was about $70 trillion in 2011.
What does QE0 FASB look like for the Equities-Stock Market?
In future posts, we will look at how these derivatives and other mechanisms are used to suspend free market forces; a finite factor is time. But there is more to the Federal Reserve’s love affair with mortgage bonds, because the crater left by insolvency has to be filled.
II. Who Has Been Hoarding U.S. Treasuries
The chart below shows a simple year to year change in the largest banks’ holdings of U.S. Treasuries and other securities. Since the banking and financial crisis in 2008, the largest banks added incrementally more U.S. Treasuries holdings to their balance sheets in four years than the past 20 years combined. This serves the dual purpose of helping to capitalize the banks and as the few remaining buyers of U.S. Treasuries as the Federal Reserve “monetizes” or prints dollars to make up the rest. If the past four years is any indication, 2013 looks to be a bigger year as the few seeking safety in U.S. Treasuries may be found at the largest banks.
Voodoo Parking Lot Chart 2:
From a different perspective, if we look broadly to the currency composition of foreign central banks (IMF COFER), relative holdings of U.S. dollars and U.S. Treasuries to total foreign exchange reserves have dropped by over 60% from the height in 2000 of 56% to 34% in 2012. The often-cited 62% of central bank foreign exchange holdings being in U.S. dollars overlooks nearly half of currency holdings that are unreported, the growth of which has been driven by emerging and developing economies – presumably led by China.
Emerging and developing economies have grown to account for about two-thirds of the world’s central bank holdings of foreign exchange reserves as their relative holdings of U.S. dollars have quietly gone in the opposite direction… and some portion quietly into accumulating gold. Increasingly, bi-lateral trade agreements among other nations exclude the use of the U.S. dollar as payment for international trade, once the domain of the U.S. dollar as the world reserve currency. Other countries see what is unfolding in this country but it is unclear if the American public sees it.
The Federal Reserve Bank is printing trillions of dollars (and euros through currency swaps) to levitate its member banks and the financial system in concert with the suspension of accounting rules after the systemic collapse of derivatives built around the housing market. Why mortgage bonds from Fannie Mae and Freddie Mac?
III. The Front End and Back End of Quantitative Easing – Fannie Mae, Freddie Mac, MERS, and the Federal Reserve’s Largest Member Banks
We return to the center of the banking and financial system collapse in 2008. On the front end, Fannie Mae and Freddie Mac guarantee the equivalent of one-third of U.S. GDP in mortgages, making them perhaps the largest financial institutions in the world. During the crisis in September 2008, Fannie Mae and Freddie Mac were taken under conservatorship by the U.S. Department of the Treasury, which stepped in to guarantee unlimited capital infusions to ensure the solvency of these agencies, lifting the $400 billion cap on December 24, 2009.
The unlimited part of the capital infusions by the U.S. Treasury comes to an end on December 31, 2012. Coincidentally on September 13, 2012 the Federal Reserve announced QE 3 that it will print essentially unlimited dollars to purchase Fannie Mae and Freddie Mac mortgage bonds for as long as it takes. There is a 2-3 months overlap, in case the idea was to ensure a smooth transfusion for the Federal Reserve to pick up where the U.S. Treasury leaves off.
Jim Sinclair’s Commentary
It might be interesting to watch the gambler’s odds on the upcoming election. A minus category is favored and plus category is disfavored. Not that it makes any difference, but gamblers know more than polls or MSM knows.
ELECTIONS – (2 OPEN EVENTS)
ELECTIONS – Oct 22
2012 USA ELECTIONS $5000 LIMIT
TO WIN 2012 USA PRESIDENTIAL ELECTION
85015 BARACK OBAMA -185
85016 MITT ROMNEY +165
Jim Sinclair’s Commentary
News from GATA.
FLASH: German gold report reveals secret sales that likely were part of swaps
Submitted by cpowell on 01:27PM ET Monday, October 22, 2012. Section: Daily Dispatches
3:51p CT Monday, October 22, 2012
Dear Friend of GATA and Gold:
With the Associated Press report appended here, the German gold audit story has just exploded into the English-language press with some important revelations:
– The gold vaulted by the German central bank, the Bundesbank, with the Bank of England "has fallen ‘below 500 tons’ due to recent sales and repatriations. …" So despite the lack of official announcement, Germany lately has been selling gold from London — perhaps as part of the secret "strategic activities" grudgingly acknowledged two years ago by the Bundesbank to GATA’s friend, the German financial journalist Lars Schall:
The lack of announcement of the sale of the German gold in London suggests that the sale was actually part of a gold swap with another central bank — like the New York Fed. That is, the powerful implication here is that German gold in London was sold at the behest of the United States and in exchange Germany took title to United States gold vaulted in the United States — or title to gold supposedly vaulted in the United States. This way the Bundesbank could continue to claim ownership of the same amount of gold without lying, at least not technically.
As for the Federal Reserve and the U.S. Treasury Department, when you rig every market you can’t worry so much about lying.
Of course such gold swaps were the target of GATA’s federal freedom-of-information lawsuit against the Federal Reserve in U.S. District Court for the District of Columbia, a lawsuit concluded somewhat successfully last year, having pried from the Fed an admission that it has secret gold swap arrangements with foreign banks:
– The Bundesbank is resisting accountability and has censored part of the auditors’ report in the name of protecting secrets of the central banks storing the German gold. But why should there be any secrets about it? Nobody’s asking for the combination numbers to the vaults, and the combination wouldn’t do anyone any good anyway, as the vaults are guarded. Do these secrets involve gold loans and leases and other legerdemain? That seems to be the case.
– The campaign to repatriate the German gold has gotten noticed in a big way.
– The Bundesbank has been officially reprimanded by another German government agency for negligence in its custodianship of the national gold.
– The Bundesbank won’t let German parliament members inspect the German gold vaulted abroad because the central bank vaulting facilities supposedly lack "visiting rooms." And yet one of those vaults, the Federal Reserve Bank of New York, offers the public tours that include "an exclusive visit to the gold vault" — provided, apparently, that you’re not an elected representative of the German people:
GATA has made further informational requests of the Federal Reserve, Treasury Department, and State Department involving their gold records:
Since those agencies have failed to respond, GATA now is entitled to bring more freedom-of-information lawsuits against them. But we can’t do that without sufficient financing.
The auditors’ report about the German gold demonstrates that the Western central bank gold price suppression scheme — part of a vast scheme of rigging all major markets — can be exposed and defeated by persistent clamor and demands for information. If you haven’t already considered helping us financially, please do so now:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Jim Sinclair’s Commentary
From a source I believe to be true. If so, here is another reason to vote for neither.
Jim Sinclair’s Commentary
When the people become so corrupted the operating phrase is here:
I agree to this Constitution with all its faults, if they are such: because I think a General Government necessary for us, and there is no Form of Government but what may be a Blessing to the People if well-administered; and I believe farther that this is likely to be well administered for a Course of Years and can only end in Despotism as other Forms have done before it, when the People shall become so corrupted as to need Despotic Government, being incapable of any other.
Jim Sinclair’s Commentary
Smart Scan Chart Analysis confirms that a strong uptrend is in place and that the market remains positive longer term. Strong Uptrend with money management stops. A triangle indicates the presence of a very strong trend that is being driven by strong forces and insiders.
Based on a pre-defined weighted trend formula for chart analysis, EURUSD scored +100 on a scale from -100 (strong downtrend) to +100 (strong uptrend):
Last Hour Close Above 5 Hour Moving Average
New 3 Day High on Tuesday
Last Price Above 20 Day Moving Average
New 3 Week High, August 2nd
New 3 Month High on September 7
My Dear Friends,
Could it be that there is a rising recognition that pre-election markets are both operated by friends of the family and this is what we are dealing with?
I think so.
That then means that the sheeple are starting to wake up a little. Operative word here is "little."
Jim Sinclair’s Commentary
What a lovely and transparent gift to the incumbent! I am referring to levels, not today’s direction.
Jim Sinclair’s Commentary
Good morning Euro. You are making it harder for the manipulators to hurt gold.
1.30690 +0.00368 (+0.28%)A
2012-10-22 11:43:38, 0 MIN DELAY
Jim Sinclair’s Commentary
Putin, seeing the economic weakness of the USA and Euroland, begins both economic and military measures that will keep the US from cutting its military budget and accumulating gold. This first test is very meaningful if you have eyes to see.
Putin flexes muscle in big test of Russia’s nuclear arsenal
By Steve Gutterman
MOSCOW | Sat Oct 20, 2012 3:34pm EDT
(Reuters) – President Vladimir Putin took a leading role in the latest tests of Russia’s strategic nuclear arsenal, the most comprehensive since the 1991 Soviet collapse, the Kremlin said on Saturday.
The exercises, held mostly on Friday, featured prominently in news reports on state television which seemed aimed to show Russians and the world that Putin is the hands-on chief of a resurgent power.
Tests involving command systems and all three components of the nuclear "triad" – land and sea-launched long-range nuclear missiles and strategic bombers – were conducted "under the personal leadership of Vladimir Putin", the Kremlin said.
An RS-12M Topol Intercontinental Ballistic Missile was launched from the Plesetsk site in northern Russia, and a submarine test-launched another ICBM from the Sea of Okhotsk, the Defence Ministry said.
Long-range Tu-95 and Tu-160 bombers fired four guided missiles that hit their targets on a testing range in the northwestern Komi region, it said.
"Exercises of the strategic nuclear forces were conducted on such a scale for the first time in the modern history of Russia," the Kremlin statement said.