The Federal Reserve Really Has No Practical Option To End QE

Posted at 6:40 AM (CST) by & filed under General Editorial.

Mr. Jim,

Sorry to hear you have to hand hold the unfaithful…

Kindly let me know if I am missing something:

1. Fed stops buying the 10 year. As Fed is buying something like 60% of the 10 year, supply constant to up, demand falls, interest rates go up and bond prices go down. Existing bond holders take a haircut, new issuances have to go out at higher rates. Economic activity decreases, perhaps intensely

2. Fed stops buying, slows down buying MBS. MBS predicated on 10 year rate, MBS rates rise/MBS nominal value falls, refi rates rise, house fini market slows (crashes!)…

3. Fed jumps in, buys with gusto, market loves the juice and all is (s)well…

Rinse, lather, repeat.

The idea that these guys can stop, even slow QE seems ridiculous to myself, similar to a fool trying to refute Newton`s 3rd law of motion.

As always, thanks for your time!

Cheers,
CIGA Rod

Dear Rod,

To some degree, yes. Keep in mind that "QE to Infinity" has nothing to do with Main Street. It has to do with the lingering real balance sheet problem camouflaged by FASB permission for financial companies as a product of their ability to value their OTC derivatives at whatever price pleases them.

If QE comes to an end it will further impact the lending ability and willingness to lend by major institutions. You CANNOT show up on the doorstep again with QE and expect that all factors will move in a desired direction. There is no other tool out there to handle the unique economic problems of today (buy time) other than QE.

Therefore:

It will be interesting to see if the PPT (plunge protection team) can hold general equities up via their immense spreads.

Now negative economic news becomes more positive for gold as it makes, in the mind of the market, more difficult to take a hawkish stand at the Federal Reserve, which the cessation of QE would certainly be. On the other side, good economic news would have the opposite impact.

I cannot at present conceive of a better answer now to you inquiry than to again post what I explain correctly as the reality of the subject of QE, so important to understand.

The Federal Reserve Has No Practical Option To End QE

Dear CIGAs,

Such an announcement has been part of QE either from MSM or some Fed board member since it began. The implication of stopping QE is so dire to the economy that it is in a practical sense impossible. When gold was being sold by central banks during the 1970s market announcements were made constantly with the bias to depress metals.

There is no way that the implications and consequences of what has been done up to now can be talked or manipulated away. There is no practical way that QE can cease here or in Euroland without a total and final collapse of the financial system. Just go back to the IMF report on OTC derivatives I posted this morning. If QE ceases, the US bond market collapses and the Fed must debt monetize all required debt, which means if QE stops, it starts up again immediately and in a crisis mode.

I have to admit that if you have been a reader here for any length of time you should know this without asking me. The pressure that people unload on me during any gold reaction is downright mean.

The statement that QE can stop is simply MOPE. QE cannot stop or the world ends as you know it.

Please print this out and post it on your computer because every time the long cycle guy repeats his year old bear gold price prediction or the Fed says anything about stopping QE, you all go wild. It is embarrassing really.

If you do not understand what you are in, why are you in it?

Truman said it all when he said if you can’t stand the heat, get out of the kitchen.

The Federal Reserve has no practical option to end QE without ending the economic world for decades to come. Should that actually occur in some parallel universe, only gold will protect those citizens from the collapse of the by-default reserve currency. I am sure i have written this at least 200 times.

Respectfully,

Jim