| |
| A Weekly Newsletter for Sunday, April 22nd, A.D. 2012 |
| |
| |
| MARKETS |
| |
Between Friday, April 13th, and Friday, April 20th, the bid prices for:
Gold fell 0.9 % from $1,658.50 to $1,642.00
Silver rose 0.6 % from $31.50 to $31.70
Platinum fell 0.2 % from $1,581 to $1,577
Palladium rose 4.9 % from $642 to $674
DJIA rose 1.9 % from 12,801.31 to 13,050.80
NASDAQ fell 0.2 % from 3,017.31 to 3,011.72
NYSE rose 1.5 % from 7,916.55 to 8,036.97
US Dollar Index fell 1.0 % from 80.06 to 79.27
Crude Oil rose 1.7 % from $102.06 to $103.80
|
|
|
| |
|
| |
Changes are coming to America and to the world. Real changes. Not the changes Obama sucked the American people into believing were coming. Not good changes but changes that will effect every man, woman and child for decades and longer. It just isn’t about finances but the ability to live our lives in the manner we desire.
America was the world’s largest creditor nation until they closed the gold window in the early 70’s. The country has deteriorated to the world’s largest debtor in 40 short years. The continued weakening of our currency is accelerating at a pace truly alarming.
It is disturbing for all but less so for those who have protected their assets. Hard working people who purchased the insurance policy protecting them against the ravages of inflation will be able to provide for their families and increase their wealth for years to come. That insurance policy is gold and silver.
DO NOT allow the misinformation generated by Wall Street and Washington particularly during an election year lull you into ignoring the extreme critical position and changes coming very soon. Our Liberty, our Rights, our Freedom have just about been eliminated 100%. Take this one action that still provides you the financial privacy and the financial peace of mind in today’s world.
Russia continues to purchase gold along with Mexico to which nearly $1 Billion was purchased in the month of March. How much have you accumulated?
You can begin by calling Discount Gold & Silver Trading. Be proactive in your finances. I truly believe we are living in the eye of the storm. Will you be financially secure 4 years from now?
|
| |
To QE3 or Not to QE3?
That is the Question!
Edited by Alfred Adask
Matthew Bishop, the US Editor of The Economist was recently interviewed by the Wall Street Journal TV. During that interview, Mr. Bishop predicted that governments will soon debase currencies such as the “paper dollar and “paper euro” “in a big way.” He said that the weaker than expected March unemployment report is leading to further Wall Street demands for more stimulus plans and that Wall Street’s addiction to debt is leading to the continuing debasement of the dollar. Further Quantitative Easing (QE3)—which, incidentally, will support the price of gold—is virtually inevitable.
The slogan “QE3 to infinity” has caught on among gold gurus. They argue that QE3 must start soon and essentially continue until the US economy crashes.
Richard Duncan, author of The New Depression: The Breakdown of the Paper Money Economy argues that Federal Reserve Chairman Ben Bernanke will continue to “stimulate” the currently listless economy with massive infusions of fiat currency. Therefore, "For the year 2012—Expect QE3."
However, while I don’t doubt that there’s a QE3 in our future, I’m unconvinced that we’ll see QE3 this year. But before I explain why, let’s explore the meaning of QE (Quantitative Easing).
• Wikipedia defines “Quantitative Easing” as follows:
“. . . an unconventional monetary policy used by central banks to stimulate the national economy when conventional monetary policy has become ineffective. A central bank buys financial assets to inject a pre-determined quantity of money into the economy. This is distinguished from the more usual policy of buying or selling government bonds to keep market interest rates at a specified target value. A central bank implements quantitative easing by purchasing financial assets from banks and other private sector businesses with new electronically-created money. This action increases the excess reserves of the banks, and also raises the prices of the financial assets bought, which lowers their yield.”
Note, while implementing QE, a central bank like the Federal Reserve will “buy financial assets” (bonds) not to preserve capital or make a profit, but rather for the purpose of injecting currency into the economy. Given the object is not to profit but to increase the supply of currency in the economy, central banks are prone to overpay for whatever bonds they purchase during QE. I.e., if the fair market price for some bonds is $1 billion, but the object is to inject new, “electronically-created” currency into the economy, the central bank is likely to pay $1.5 billion for bonds worth only $1 billion.
“Expansionary monetary policy typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates (using a combination of standing lending facilities and open market operations). However, when short-term interest rates are either at, or close to zero, normal monetary policy can no longer lower interest rates.”
Under Keynesian economics, it’s presumed that an economy in recession can be “stimulated” by lowering interest rates. If the central bank (Federal Reserve) lowers interest rates, the people of the economy will be more prone to borrow and spend. As they spend more, the economy is revived, employment rises, and the recession ends. That’s the theory.
However, when there’s a persistent economic recession and government therefore implements a series of successively lower interest rates, interest rates can fall to zero while the public still stubbornly refuses to borrow and spend. If the public won’t take the “bait” (low, low interest rates), a fundamental Keynesian strategy (controlling interest rates) becomes ineffective. The Fed can’t lower interest rates below zero to entice people to borrow and spend, but they also don’t dare raise interest rates and cause the people to spend even less for fear of collapsing the economy. The result is called a “Keynesian” or “liquidity” trap wherein interest rates can’t go higher or lower and are therefore “trapped”.
Whenever the “conventional” tactic of manipulating interest rates fails to stimulate the economy, central banks are compelled to employ the “unconventional” tactic of artificially increasing the supply of currency in circulation. Quantitative Easing (QE) increases the supply of currency in circulation. By increasing the supply of currency, QE promotes monetary inflation.
Note that whenever you see QE, you’re seeing an admission that “conventional” Keynesian economic strategies have failed, and a new “unconventional” (“desperate”) economic strategy must be employed. QE is the “last resort” and signals that an economic depression is near and those who presume to control the economy are in a state of panic.
“Quantitative easing can be used to help ensure inflation does not fall below target. Risks include the policy being more effective than intended in acting against deflation—leading to higher inflation, or of not being effective enough—if banks do not lend out the additional reserves.”
Deflation is the hallmark of economic depression. QE is intended to stop deflation by causing monetary inflation. It is presumed that by inflating the supply of currency in circulation, that the currency (fiat dollars) will become cheaper, and the public will be more willing to spend them. As the public spends more, employment increases and the recession ends. That’s the theory.
“In such a situation [zero interest rates, failure of Keynesian interest rate manipulation, and an economic recession/depression], the central bank may perform quantitative easing by purchasing a pre-determined amount of bonds or other assets from financial institutions without reference to the interest rate.
Under QE, the Federal Reserve buys bonds “without reference to interest rates”?!
Normally, investors buy bonds to preserve their capital and secure a relatively high profit. That profit will be largely determined by the bond’s interest rate. But if a central bank (Federal Reserve) is purchasing bonds from other banks and financial institutions “without reference to interest rates,” it implies that they are buying bonds for reasons other than the preservation of capital or profit. In fact, these QE purchases will be executed even if the Federal Reserve fully expects to take a loss on their “investment”.
Under QE, the Fed acts in violation of fundamental market objectives: 1) preserve capital; and 2) make a profit. The Fed knowingly overpays for financial instruments and sometimes pays full price for “toxic assets” that are known to be nearly worthless.
Why?
A: in order to stimulate the economy rather than preserve capital or make a profit.
The fundamental principle for preserving wealth and making a profit in any market is “buy low and sell high”. But under QE, central banks defy that principle. Instead, central banks buy bonds at artificially “high” prices and, if they ever sell those bonds, we can expect them to sell “low”.
How can any market work to discover true, free-market prices if the biggest investors are willing to buy high and sell low? That’s a formula for economic ruin. Under QE, bond markets don’t “discover” true, free-market prices; they create artificially-high, fantasy prices.
The Fed’s QE program is tantamount to average investors buying Enron stock at $100 a share in order to “stimulate” the economy. I’m sure that the current holders of Enron stock would be delighted and highly “stimulated” if they could find some sucker willing to buy their stock for $100 a share. But where’s the sense in taking currency from people who have it (central banks) and giving it to people who’ve been fools (the owners of toxic assets)?
Under QE, the central banks intentionally play the “greater fool”. They know that QE purchases will cause them to lose wealth, but they buy just the same.
Clearly, QE “investing” for the purpose of losing money is an “unconventional monetary policy”.
• On one level, stimulating the economy to avoid a depression seems like a worthy objective. But on another level, how can any economy be well-served when the major investor knowingly overpays for bonds, artificially increases the prices of comparatively worthless (“toxic”) investments, defies fundamental free market principles, and deceives the majority of smaller investors into believing that certain bonds/investments have a much higher value than is justified?
Isn’t the deception (artificially high prices) caused by QE evidence of fraud perpetrated against the American people and investors?
For example, suppose I owned a junkyard and I had 500 wrecked Ford 150 pickups that might be worth $200 each as scrap. Suppose I arranged to auction off 20 of those wrecked pickups. Suppose I arranged for half a dozen of my friends to bid at least $10,000 on each of those 20 wrecked Fords. Suppose the public was therefore deceived into believing that wrecked Fords were worth $10,000+. Could I get rich selling my other 480 wrecked Ford pickups? Yes.
But wouldn’t my scheme to deceive the public with my “fixed” auction (paying artificially high prices) constitute fraud? Yes.
QE’s attempt to deceive the public by intentionally overpaying for bonds or “toxic assets” is equally fraudulent. Is it reasonable to suppose that an economy near depression can be revived with fraud?
“The goal of this policy [QE] is to increase the money supply rather than to decrease the interest rate, which cannot be decreased further.”
QE is primarily an attempt to escape the “Keynesian trap”. In fact, the goal of QE is to cause monetary inflation and mass deception in hopes of “tricking” the public into consuming more goods and services and thereby stimulating the economy. The end (restoring the economy) is presumed to justify the means (fraud). The hope is that once the economy is stimulated (even by fraud), the economy will start to run on its own again and sustain itself with renewed consumption and production. Whether that hope is rational or only desperate remains to be seen.
“This is often considered a ‘last resort’ to stimulate the economy.”
I.e., QE is the economic equivalent of the crash cart and paddles in the hospital’s emergency room. If “doc” Bernanke orders QE, the patient must be in critical condition. If QE fails, next step is to call a priest to administer “last rites”.
QE is an implied admission by the gov-co that the warnings of “doom and gloom” critics of the US economy have been very close to the truth. We haven’t had an economic collapse, but QE is evidence that we’ve come close.
“Quantitative easing, and monetary policy in general, can only be carried out if the central bank controls the currency used.”
No fiat currency; no QE. (Also—no fiat currency; no lies, fraud or deception.)
• Japan first coined the term “quantitative easing” in A.D. 1995 and began to openly implement that strategy about A.D. 2001. But after 11 years of QE, has the Japanese economy improved? Admittedly, Japan has not yet slipped into a genuine depression, but all the Emperor’s QE and all the Emperor’s men have not put the Japanese economy back together again, either. If anything, despite QE, Japan remains vulnerable to deflation and depression.
“During the peak of the financial crisis in 2008, in the United States the Federal Reserve expanded its balance sheet dramatically by adding new assets and new liabilities without ‘sterilizing’ these by corresponding subtractions.”
Apparently, the Fed bought new assets (overpriced bonds), but didn’t deduct the price they paid from their balance sheets. How dey do dat? By printing new “digital” currency.
Suppose I had $100,000 in the bank and bought a new car for $20,000. In theory, my accounting should “balance” in that I acquired a new $20,000 asset (the car) and paid for with a $20,000 debit from my bank account. At the end of the transaction, my accounting “balances” and I still have $100,000 (although $20,000 is now in the form of a new car).
The Fed’s balance sheet is apparently not subject to the same rules of accounting. Figuratively speaking, under QE, the Fed bought a new $20,000 car, but still had $100,000 in their bank account. How’s that possible? The Fed created the “extra” $20,000 needed to purchase the car by printing an extra $20,000. If you or I tried to “create” currency, we’d be jailed for check fraud or counterfeiting. QE appears to be a fraud that’s legally sanctioned for central banks.
If an economy can only be saved by legalized fraud, the underlying economic conditions must be truly dire.
“QE can reduce interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.”
“Financially weaker bodies” sounds like code for sub-prime borrowers—one of the fundamental causes of the A.D. 2008 financial crisis. If QE encourages sub-prime borrowers, is QE encouraging another financial crisis?
Y’see how stupid all the deception, lies and fraud inherent in QE seems? QE is ultimately like drilling holes in the bottom of a sinking boat to let the water out. QE is evidence of desperation.
• So, as predicted by the US editor of The Economist and the author of The New Depression: The Breakdown of the Paper Money Economy, will we see another round of Quantitative Easing (QE3) before the end of A.D. 2012?
A: Maybe. But probably not.
After all, 2012 is an election year. Whether QE3 would help the economy is one question. Whether QE3 would help President Obama’s reelection is another.
I doubt that there’s enough time (6 months) between now (April) and the November election to initiate QE3 now and still see positive results before the election. In fact, given that the positive results would have to be seen at least one or two months before the election to have a positive effect on the voters, Obama might have, at most, 4 months (if he started QE3 right now) for QE3 to postively impact the economy and voters. I doubt that QE3 could have a measurable effect in just 4 months.
If QE3 can’t positively impact the economy and voters before the election, QE3 probably won’t be attempted.
Why? Because, if QE3 were attempted now, its positive effects would be delayed until 2013, but its ability to cause monetary inflation might be immediate. Thus, while QE3 might not stimulate the economy before the election, it might still cause additional inflation in the prices of food or gasoline which would antagonize voters.
Even if QE3 didn’t actually cause any price inflation for food or gasoline, QE3 (and Obama) would still be blamed for whatever increases in food and gas prices afflicted voters.
More, by openly instituting QE3, Obama would implicitly admit that his alleged “economic recovery” isn’t working. QE3 would constitute an admission that whatever Obama has done for the past 3 years has been ineffective. That admission can’t help Obama’s reelection.
Therefore—if Obama’s reelection can’t benefit from QE3 before the election but might suffer a liability for food & gas price inflation and/or for admitting that there’s been no “recovery”—the probability that we’ll see QE3 in 2012 seems small. The only exception is if the economy is once again so near to collapsing into a depression that the government is compelled to initiate QE3.
If the economy holds, QE3 before the November election not impossible. But QE3 in the 1st or 2nd quarters of A.D. 2013 seems far more likely.
Changes are coming to America and to the world. America was the world’s largest creditor nation until they closed the gold window in the early 70’s. The country has deteriorated to the world’s largest debtor in 40 short years. The continued weakening of our currency is accelerating at a pace truly disturbing.
It is disturbing for all but less so for those who have protected their assets. Hard working people who purchased the insurance policy protecting them against the ravages of inflation will be able to provide for their families and increase their wealth for years to come. That insurance policy is gold and silver.
DO NOT allow the misinformation generated by Wall Street and Washington particularly during an election year lull you into ignoring the extreme critical position and changes coming very soon. Our Liberty, our Rights, our Freedom have just about been eliminated 100%. Take this one action that still provides you the financial privacy and the financial peace of mind in today’s world.
For the best in pricing and service for gold and silver coins, call Melody at 1-800-375-4188. Be sure to listen to DGSTC live on Short-wave 7.415Mhz M-F 4:00PM ET, and 3.215 MHz M-F 11PM ET.
Call 1-800-375-4188 or visit the Web site at www.discountgoldandsilvertrading.net
or email us at: discountgoldandsilver@yahoo.com
Discount Gold & Silver Trading Co. provides all forms of precious metals including gold, silver platinum and palladium whether you are buying or selling. Our inventory includes but not limited to the American Gold, Silver, Platinum Eagle and numismatic products including rare, investment and circulated coins. Silver dollars, silver bars, rounds are on hand for the silver investor. Foreign gold is also available. Call for information regarding your precious metal gold and silver IRA. 1-800-375-4188 |
|
| |
|
