Surprise Surprise...Fed Launches QE3

[G-man422]

I hardly know anything about economics could you recommend any literature for a crash course to understand like gdp to debt, and how the international banks / fed work?

The Creature From Jekyll Island by G. Edward Griffin

 

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[Atown512]

The USA buys a huge amount of their goods and products. If they put us under they lose a tremendous percentage of their exports.

Yes, but at some point when the USD loses enough value, China will decide to stop trading their products for our worthless paper.

Of course NONE of us know what is going to happen. BUT I will stake ALL my money that we will not see this in my lifetime. Only way to tell is we will all meet back here 9/15/2062 and noon and see who was right

The problem with this is that the reason we call it a bubble is because when it pops, it pops fast! The open-ended nature of this plan means everything could unravel very quickly. There are several good articles on the subject at Peter Schiff's website europac.net: Operation Screw | Euro Pacific Capital

 

[jilla82]

you are missing significant warning signs, friend

I just dont see a total collapse.
There is always something to be afraid of.

 

[jilla82]

Prove us wrong... I am starting to think you are one of the people that needs the economic education from that other thread. Perfect example, you seem just fine living your life making up your own realities. Please, at least look at the big picture.

What other thread? I dont even know who you are.

Nobody can prove anything...its all theory. When one party is in office the other side freaks out because side A thinks side B's outlook will ruin us. Its always the case.


In short...If youre scared, go to church.

 

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[Atown512]

I just dont see a total collapse.
There is always something to be afraid of.

Nobody can prove anything...its all theory. When one party is in office the other side freaks out because side A thinks side B's outlook will ruin us. Its always the case.

I think you have this all wrong. I don't want to turn this into a discussion about politics, but both "sides" are terrible. As MJ put it earlier, the only difference between the two parties is speed and severity of the crash. The fundamentals have not changed since before the housing collapse, and now we are making the same mistakes bigger and faster this time around with no end in sight.

In short...If youre scared, go to church.

I don't think anyone here is scared...We should learn about this stuff and discuss it so we can logically plan for the future. I don't give one shit about politics, except that their decisions affect me and the people I care about. I would prefer to hear what everyone is doing to preserve the wealth we have, and more importantly to us slowlaners...what strategies to generate wealth in this new economic climate.

 

[jilla82]

Im not saying I think there is a large difference in the two parties (maybe in social politics)...im saying people always freak out when their party is not in power. Where was all this worry a few years ago? I only remember the Ron Paul types having issue.

 

[Kak]

I am anti-government. Who is my party? With the exception of a judicial system I see government as a burden to wealth, prosperity and freedom.

I was honestly questioning if you bring anything of value to the table on a business forum and have decided I will probably just put you on my ignore list. Do you have a business? Have you dealt with bureaucratic BS and red tape?

 

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[mohawkdcg]

That is a good way to think about it unless your assets and currency devalue just like all of the properties you want to buy.

I don't believe we should fear the QEs. Each QE has been less effective than the last and I expect this one will likely have almost no effect. Also, there are many factors that are driving the US currency to increase in value. So my approach presently is short assets and long dollar at least for a few more years. If I am right about continued dollar strength then there will be assets available at very good dollar prices in the near future.

 

[jilla82]

I am anti-government. Who is my party? With the exception of a judicial system I see government as a burden.

I was honestly questioning if you bring anything of value to the table on a business forum and have decided I will probably just put you on my ignore list. Do you have a business? Have you dealt with bureaucratic BS and red tape?

Im still trying to figure out how you know me.

The fact that you go from...
...seeing someone may disagree with you, to placing them on ignore says a lot.

If anything im asking questions to see why some are weary of the future...but from you im getting emotion.

 

[Atown512]

If anything im asking questions to see why some are weary of the future...

Because all of the signs point towards a sever economic downturn. Our phony economy is based on consumption and borrowing. Our current strategy (as a nation) is basically to borrow money and then borrow again to pay it back. This cannot be sustainable.

At some point, we will have to produce more than we consume to pay back our debts or else we default. By printing away this problem, we are merely paying back our creditors with less valuable money. Devaluation is still a default. What happens when our creditors wake up to this and decide not to buy our debt anymore? What happens when the Fed can't buy any more MBS to keep interest rates low?

The bottom line is that we need more production and savings instead of consumption and spending. All of the current strategies are aimed at "stimulating" consumer demand which is the exact opposite of what we need. Consumer demand doesn't need to be "stimulated" because consumers will always "demand" things. If we don't have the capacity to produce, there is nothing to consume.

 

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[Leoto]

I an expecting a rise in silver in the next decade that will blow away your expectations. I am slowly accumulating physical silver.

Yes, precious metals for the coming decade. In the decade after that, I'd be betting on canned food, portable microfilters, ammunition, and fuels. The investment opportunities are clearly laid out in Mad Max

All kidding aside, I know of some very good foreign currency traders that, completely aside from FX trading, are accumulating physical silver right now, so at the very least you're in good company.

 

[PopEmersen]

China will continue loaning the US money. Their economy, while doing well is not doing that great anymore as it is.

The USA buys a huge amount of their goods and products. If they put us under they lose a tremendous percentage of their exports.

Agreed

Also, I don't see the dollar NOT being the reserve currency for one simple reason. TRANSPARENCY.

The only other 2 currencies that could take its place would be:
the EURO, but that's on the verge of not being in existence or
the Chinese Ren but the Chinese economy does not have the transparency that the US has. Their currency is heavily manipulated by the state.

Also, China, as it stands now, does not reward entrepreneurs and content creators like the US does. In China, you can easily counterfeit someone else's idea and make money. That's not that easy in the US due to copyrights, trademarks, etc. I mean shit, there are fake iPhone 5s out before the real ones came out.

We are all entrepreneurs ourselves, would you really do most of you business in a currency where almost everything is state owned and the "market" is easliy manipulated? Thats the reason why the US system as good as it is, regardless of how "socialist" someone says it is, the markets usually handle them selves.

 

[socaldude]

The same is true for real estate. I buy so dirt low that nobody can even build a property at the prices that I pay - unless you were able to teleport workers from China, build the property in Phoenix, and then teleport them back.

This is true here in California. A lot of RE developers lost a ton of money. This is how I did my first Real estate deal. paid about $120 a square foot in a really good neighborhood, dirt cheap IMO. A 3 year old townhouse. The next few years will cost very little to maintain. the best part; no real estate agent needed .

 

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[jilla82]

Also, I don't see the dollar NOT being the reserve currency for one simple reason. TRANSPARENCY.

This is pretty much how ive been thinking on the subject.

 

[Atown512]

Also, I don't see the dollar NOT being the reserve currency for one simple reason. TRANSPARENCY.

I don't see how this has anything to do with the soundness of our currency. Just because our currency is the "prettiest" pig on the farm, doesn't mean that it will stay that way. China, Russia, and India have already been doing business without our reserve currency.

Their currency is heavily manipulated by the state.

How is this ANY different than what our Federal Reserve does with the USD?

Thats the reason why the US system as good as it is, regardless of how "socialist" someone says it is, the markets usually handle them selves.

Yes, that would be true if we actually had a free market. What we have is Crony Capitalism: Crony capitalism - Wikipedia, the free encyclopedia What do you think created the housing bubble in the first place?

 

[skipper]

Most people around me think I am crazy when I start talking about Germany and the hyperinflation era,

I was born and raised in Yugoslavia. I don't thing our hyperifnlation was as bad as the german one (well, maybe Serbia had something similar during the final days), but still, it was massive.

Interesting though, living inside the hyperinflation area was not all that bad. Yes, our purchase power was way lower than anything compared to western europe - for example, a Kinder surprise egg was a huge gift for us children at the time.

People learned to pull amazing tricks. For example:
- cheques had to travel all the way to Belgrade to be processed and by the time they reached the agency (payment system was not performed by banks but by an national agency), the inflation has eaten so much of the value of the cheque that you literally got goods for peanuts
- people got fixed-rate house loans (they didn't even have mortgage, just a loan). Of course salaries grew exponentially and the loan did not. Many people payed off the loan with a single monthly salary in a couple of months / years.
- in general, the country was able to compete on price with its low currency value, and export was quite strong

The problem with above points is, that the nation is completely screwed up though. People remember those times as actually "good times". We are still extremely socialistic (e.g., with an average salary, which is 1000 euro net, I think you pay something something like 40% taxes) and people are just saying "the country should". I hate it. It's crazy. Not to mention a housing bubble. Not a bubble but really.. space like endless expansion. People are trying to sell shit like this for close to $500.000. In a country which is about to go bankrupt. I laugh. And cry.

 

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[PatrickP]

I was born and raised in Yugoslavia. I don't thing our hyperifnlation was as bad as the german one (well, maybe Serbia had something similar during the final days), but still, it was massive.

Interesting though, living inside the hyperinflation area was not all that bad. Yes, our purchase power was way lower than anything compared to western europe - for example, a Kinder surprise egg was a huge gift for us children at the time.

People learned to pull amazing tricks. For example:
- cheques had to travel all the way to Belgrade to be processed and by the time they reached the agency (payment system was not performed by banks but by an national agency), the inflation has eaten so much of the value of the cheque that you literally got goods for peanuts
- people got fixed-rate house loans (they didn't even have mortgage, just a loan). Of course salaries grew exponentially and the loan did not. Many people payed off the loan with a single monthly salary in a couple of months / years.
- in general, the country was able to compete on price with its low currency value, and export was quite strong

The problem with above points is, that the nation is completely screwed up though. People remember those times as actually "good times". We are still extremely socialistic (e.g., with an average salary, which is 1000 euro net, I think you pay something something like 40% taxes) and people are just saying "the country should". I hate it. It's crazy. Not to mention a housing bubble. Not a bubble but really.. space like endless expansion. People are trying to sell shit like this for close to $500.000. In a country which is about to go bankrupt. I laugh. And cry.

WOW right from the horses mouth so to speak.

Talk about looking at things in a positive light, very nice!

For sure the US media, and probably media all over the world is a B - U - S - I - N - E - S - S

They exist to make money by selling advertising. They do NOT exist to bring report in an unbiased manner on what is happening in the world.

The more dramatic and dire they can make the news the more money they make. Hence their chicken little approach to every storm, flood and monetary happening.

If a TV news station were to cover news in a fair, unbiased way they would fail miserably and would not exist because they would lose their views to a slanted, hyper dramatic news channel.

 

[santa]

They exist to make money by selling advertising. They do NOT exist to bring report in an unbiased manner on what is happening in the world.

The more dramatic and dire they can make the news the more money they make. Hence their chicken little approach to every storm, flood and monetary happening.

If a TV news station were to cover news in a fair, unbiased way they would fail miserably and would not exist because they would lose their views to a slanted, hyper dramatic news channel.

Totally true, but I think having an awareness of possibilities and what you might do can be worthwhile.The relative stability of the last 70 years for Western Countries can mean many of us based here have no comprehension of living out side the little stable system we've lived in all our lives.
It's becoming more publicized how the money systems that are in use have some pretty major flaws that if exposed could create massive change and dramatic impacts. Being aware of those possibilites is prudent in my opinion. For us here it's not about falling into the scare and over-dramatization of the media as you so rightly point out, but practicalities of how people can protect or exploit changes in relation to their businesses, already accumulated assets and choices in life.

Example;

I'm preparing for a worldwide economic collapse - the odds of occurrence, and speed, depending on who gets elected in November.

 

[Likwid24]

Been hearing a lot about this lately: Critical Warning Number Six by Michael Lombardi

It is basically a sales pitch to sell his info, but if you watch the whole video, a lot of what he says is what guys are talking about in this thread and makes a lot of sense. I have a very wealthy Uncle who always seems to be doing very well when everyone else is crying poverty. He introduced me to this last night and highly recommended that I look into it.

Any thoughts?

 

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[mohawkdcg]

Been hearing a lot about this lately: Critical Warning Number Six by Michael Lombardi

It is basically a sales pitch to sell his info, but if you watch the whole video, a lot of what he says is what guys are talking about in this thread and makes a lot of sense. I have a very wealthy Uncle who always seems to be doing very well when everyone else is crying poverty. He introduced me to this last night and highly recommended that I look into it.

Any thoughts?

I cannot agree with the idea of inflation when interest rates are near zero and by some measures are negative. This is a deflationary environment but as typically seems to happen the market does not completely show its hand until 95% are on the wrong side of the fence.

There are a couple of things I think this video misses but the main one is that most dollar volume is not in physical greenbacks but in credit accounts and the volume of credit disappearing is easily keeping up with new credit being created by QE1, 2 and 3, Operation Twist or any other method. And the potential amount of additional credit to disappear is exponentially larger over the next couple of years.

I could be wrong and I don't make recommendations but for now personally I remain long dollar and as of June short Bonds (sold them).

 

[skipper]

Been hearing a lot about this lately: Critical Warning Number Six by Michael Lombardi

It is basically a sales pitch to sell his info, but if you watch the whole video, a lot of what he says is what guys are talking about in this thread and makes a lot of sense. I have a very wealthy Uncle who always seems to be doing very well when everyone else is crying poverty. He introduced me to this last night and highly recommended that I look into it.

Any thoughts?

Well yes, as you say, this is first and foremost his fastlane business, so we should approach it as such.
I think the video is very good in targeting two key emotions: fear and greed. I mean, this video will scare you for sure. "What if it's true". You'll get uncomfortable.

But imagine half of that really happens. What would you really do in a situation like that? I'd be freaking scared for my existence and life. Just sustaining net worth would be a huge win in a situation like that. Instead - he's playing on the other strong emotion: greed. In combination, they serve his business quite well. And average Joes will see that and think they are ahead of others with his info, and presto - his predictions are self fulfilling prophecy (the stocks he predicts will go up really go up and such).

But from investing point of view I have my reservations about his claims.

1.He's continuously saying how you will make 2x or whatever more buy investing in this stock which trades on us stock market but at the same time he spreads fear of inflation. How does that work? You gain 200% on stock but you lose how much on inflation? About the same at least if it's the real hyperinflation thing. You could really end up in net loss.

2. He's warning against inflation but then says FED will need to raise interest rate to prevent inflation. So which one is it?

3. Germany leaves Euro and does what exactly? Just imagine Euro out of the picture, with Italian Lira, Spanish Peseta, French Frank back in place. To whom is German industry going to sell anything? Germany is world's 3rd biggest exporter, BUT, their main partners are France 9.4%, U.S. 6.8%, Netherlands 6.6%, U.K. 6.2%, Italy 6.2%, China 5.7%, Austria 5.5%, Belgium 4.7%, Switzerland 4.4% (2011 est.). Germany can not survive without those markets, hence, their currencies can't devaluate. So it's far cheaper to do the reverse, finally win the WWII and create a big Europe under centralised government, with very reduced capabilities of country governments.

4. Yes, the situation in Greece suck. But to say "Athens is in flames" is just sailing on the FUD the media is delivering to your mind. I've been to Greece numerous times in the past 2 years. Many times there were protest in front of the parliament and a lot of police force around. But I always walked there without any fear, right past the protestors. It's not as bad as media is reporting (maybe I wasn't there in the worst times, but still, people always looked at me in disbelief when I told them I'm there while the media was reporting some crap). And 100k people does not mean much in 500.000.000 EU citizens in total.

5. He claims Euro is falling. Compared to what exactly? It's raising against USD and it's fixed against Swiss Franc. Yes, Switzerland can't afford Franc to gain value versus Euro, since again - they main market is Eurozone. Their economy was (is?) in huge trouble since they were getting too expensive to export anything. So they fixed the exchange rate. It's artificial, but it shows how important Eurozone is.

6. China. What happens to china if US goes into inflation mode? Just to recap, China's biggest export markets: US 17.1%, Hong Kong 14.1%, Japan 7.8%, South Korea 4.4%, Germany 4% (2011). I think in reality you can count at least 50% of Hong Kong's and Japan's import is exported to US. So US represents close to 30% of china's export. Can china export US to lose their buying power? I highly doubt it.

7. What's this man's real track record? How many predictions did he make and how many turned out true? He gives 5 examples (really brilliant fatstrack tactic, by the way) to make sure you trust him. But he probably didn't make 5 predictions. He made 500 in his newsletters etc. What is the fail rate? We don't get this info.

8. He's also using technical analysis. He could throw dice instead, it's about the same.

I'm not saying nothing is going to happen. For sure, we are at the edge of stability before the US election. The new/old mr. president will not be able to sustain the current status quo for long.

It's also very probable that the current economic model of basically all world countries will come to an end. I mean, I never really understood how you can indefinitely spend more than you create, what governments essentially do. But you see how troika is telling Greece: no more. The price is going to be paid by the people. They took expensive loans (which they can't pay back). They counted on pension (which they will not get). But the message is clear: it's enough. Yes, we are making the landing a bit softer, mainly to keep the government in place and probably prevent civil war. But you have to know that average net salary in greece is close to 900E while in Slovakia it's 650. So, well, there is some space to go down, right (which can also boost economy as the country can start competing on price again).

But also remember that some animals are more equal than others. In particular, animals who run the fastest and have the stronger teeth, are in general far more equal. And so are the countries with WMD.

 

[Atown512]

I cannot agree with the idea of inflation when interest rates are near zero and by some measures are negative.

Unless I am misreading this, you have it exactly backwards. The reason the Fed raises interest rates is to curb inflation. When you say interest rates are negative, you must be referring to real interest rates. By definition that means we already have inflation.

2. He's warning against inflation but then says FED will need to raise interest rate to prevent inflation. So which one is it?

Of course the Fed will need to raise interest rates to keep a lid on inflation, but they won't, and THAT is the problem. Central bankers can print away our fiscal problems at the expense of everyone who owns dollars. This is the reason why no fiat currency in history has ever survived...ours will be no different

I don't think any of this means Armageddon or doomsday or anything like that, but I do think it means we will have a severe reduction in standard of living. With all of the infrastructure we have built up I don't think it will take long to recover and rebuild our economy, but I am afraid we will need a crisis to wake up to our mistakes. I don't think we will make the necessary changes until a crisis forces them upon us.

Unfortunately, the way the media demonizes capitalism and profits, we may make more of the wrong decisions and lose even more of our free market. I am afraid I am wasting my time with this, so I will recommend an excellent very easy-to-read book that explains what is going on right now:
How an Economy Grows and Why It Crashes: Peter D. Schiff,Andrew J. Schiff: 9780470526705: Amazon.com: Books

 

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[GlobalWealth]

...its all theory

No, it's history. Just study economic history and you will see where we are heading. Most recently look at Japan in 1990. They had a housing bubble and a stock market bubble.

Asset prices crashed. Prices soared. 20+ years later and they are still in a slump.

 

[GlobalWealth]

I don't believe we should fear the QEs. Each QE has been less effective than the last and I expect this one will likely have almost no effect.

Not true. While the US may be in an asset price deflation, consumer prices are inflating at a rapid rate. Have you bought a gallon of milk or gasoline in the past couple of years? How about a pair of jeans or a tshirt?

So while your wealth may have vanished, your cost of living has certainly escalated.

This round of QE is very significant. $40B per month of MBS purchases amounts to $480B in stimulus. And no cap on it either. In addition the Fed announced 0% interest rates until at least 2015.

Basically the Fed is owned by a consortium of banks. Guess what asset is the biggest drag on banks? You guessed it - mortgages.

Isn't it a bit ironic that the Fed (which is owned by the banks) just bailed out the banks in a roundabout way?

This money floods into the economy in a massive way as it removes toxic assets from the banks' balance sheets and frees up lending. Guess who pays for that folks?

That's right, you and I and the next umpteen generations of Americans.

Do the math. If you think this is insignificant you are the proverbial ostrich with your head in the sand.

You better start taking precautions as this will go much deeper than hyperinflation and a collapse of asset prices. Look around the world from a historical perspective.

Violence in the streets. Economic collapse is never peaceful.

 

[andviv]

Basically the Fed is owned by a consortium of banks. Guess what asset is the biggest drag on banks? You guessed it - mortgages.

Isn't it a bit ironic that the Fed (which is owned by the banks) just bailed out the banks in a roundabout way?

This money floods into the economy in a massive way as it removes toxic assets from the banks' balance sheets and frees up lending. Guess who pays for that folks?

So, if I understood correctly, banks will start selling off massively all their assets?

Also, given that they will have too much cash sitting idle, they will loose lending again and will flood the market with cheap loans?

Honestly, this is what I was expecting as a result of what you mentioned.

However....

I am not seeing it.

Where is this money?

They keep talking about a flooding of dollars in our economy.

And I keep waiting for it to hit.

Still do not see it.

Everybody I asked has been having issues getting loans approved by financial institutions.

Am I asking the wrong folks?

It seems to me the banks are hoarding cash. If their genius economists and experts --and market manipulators-- keep hoarding cash instead of lending it is probably cause they do not see that hyperinflation hitting us in the short term.

So, again, what am I missing?

 

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[mohawkdcg]

Unless I am misreading this, you have it exactly backwards. The reason the Fed raises interest rates is to curb inflation. When you say interest rates are negative, you must be referring to real interest rates. By definition that means we already have inflation.

We had inflation in the early 80s with interest rates above 12%, the fed funds rate at 20% and I remember my wages increasing more than 20% per year. Banks were lending out multiples of deposits received. For the last few years bank lending has dropped to less than 1. Last I looked it was 72 cents being lent out on each dollar deposited. The effect of this can be seen in bank excess reserves, which has ballooned to more than a trillion since 2009 from close to zero all the way back to 1950 that is the earliest data I have seen on this.

The QE money is not getting into the economy but does slow down some of the effect of credit deflation. The problem seems to be the volume of excess credit that could disappear over the next few years. QE would need to be in the 10s of trillions to keep inflation intact. We shall see if the fed has the will to ignore the political response to rising anti-bank sentiment and create a bailout of that size.

 

[GlobalWealth]

So, if I understood correctly, banks will start selling off massively all their assets?

We will see how it plays out in reality, but the banks will be unloading their MBS' and selling them to the Fed.

Also, given that they will have too much cash sitting idle, they will loose lending again and will flood the market with cheap loans?

This is a good question. The answer is, "who knows?"

The problem I see is economic uncertainty. It is definitely a 'risk-off' investment environment. Banks are very reluctant to make loans because they already are drowning in toxic MBS assets.

Maybe this round of QE will clear off their books and give the bankers a comfortable feeling about new loans.

Only time will tell since this just happened last week. Everyone expected this before, but this time it is squarely directed at MBS'.

it is probably cause they do not see that hyperinflation hitting us in the short term.

Don't assume the bankers know what the hell they are doing. Don't ever forget the incestuous relationships between the Fed, the Govt, and the Banks. There are incentives that don't even make sense to the rational mind.

 

[Rickson9]

"QE1 was an unprecedented attempt to infuse tottering banks with liquidity and shore up the money supply. By the time it came to an end in March 2010 the Federal Reserve had bought $1.75 trillion of mortgage-backed securities.

But still the money supply kept falling so in November 2010 Bernanke initiated QE2 which involved the purchase of $600 billion of Treasury securities. By the time QE2 docked in June 2011 the money supply had stopped shrinking. Indeed, it had returned to fairly brisk growth. Bernanke had made the moves straight out of Friedman’s playbook and staved off deflation.

But, apart from the Federal debt, the money supply was all that was experiencing brisk growth. GDP was slowing and unemployment remained stuck over 8 percent..."

The Commentator - Bernanke stuck in a bunker

 

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[FastNAwesome]

Just to give you a bit more taste of what Skipper mentioned:

The Worst Episode of Hyperinflation in History: Yugoslavia 1993-94

and it looks like this:


http://cdn100.iofferphoto.com/img3/...oslavia-hyper-inflation-banknote-set-9980.jpg

 

[theag]

I sell a collapse proof product

Don't you think that its a possibility that in the case of collapse government will regulate the most important commodities like energy and you won't be able to provide your service anymore? I mean thats a worst case scenario, but still..