To update my Halloween piece on how today was going to be the scariest day of the week, it turned out to be worse than I was afraid of. Helicopter Ben is going to dump an unprecedented amount of cash out of that chopper of his. First, the straight news:
The Federal Reserve will buy an additional $600 billion of Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation.Sounds pretty tame. Why should we be afraid? Denninger points out this gem hidden in the report from the Treasury Borrowing Advisory Committee of the US Department of the Treasury (you will note it is dated yesterday, 10/2, in one place and today in another).
The presenting member stated that the market expects the Federal Reserve to purchase $100 billion per month, as well as $30 billion per month in MBS reinvestments. This will total $1,560 billion in Treasury purchases over the next year. The member stated, however, that market participants believe the Fed will leave the status of QE2 open ended, with purchases ultimately dependent on economic conditions. The presenter also noted that the program should last six months to two years.$1560 Billion - $1.56 Trillion??? That's the entire fracking annual deficit!! So it's not "$600 Billion", it's the entire deficit that they're going to create. This is Zimbabwe stuff, folks, this is going to hurt so bad you won't be able to see straight. Yesterday, it was reported that the expected $500 billion in QE would reduce the value of your dollars by 20%. Just read that as your salary, savings, every dollar you own would be cut by 20% But this report says over three times as much QE; that means your pay just went down by 60%!! Your IRA? Down by 60%. Everything wiped out by the Federal Reserve. The banks, however, will be fine. As usual, the Fed will protect the banks by shooting you, the unarmed, non-threatening civilian, striving to take care of yourself and your family.
I don't know how long this will take to percolate through the system. As I've said before, at least for me, the general direction and effects are easy to see, the timing is difficult. The reaction of the markets was puzzling to me: metals markets were slightly down and the stock market slightly up. It seems that the markets have been expecting this and the current prices reflect these expectations. As they read and understand the releases fully, I expect commodities to rise further. I don't see how they can do anything else.
You will hear this being referred to as Keynesian economics, and this part is. I have heard that John Maynard Keynes himself never said the government should deficit spend in good times, only as an emergency measure. Especially after news like this, I need a laugh, even if it's just laughing at stupid people.
I don't see much distinction between this group of idiots and the ones at the Fed and Treasury. To borrow from the wonderful Dr. Thomas Sowell:
Guess who said the following: “We have tried spending money. We are spending more than we have ever spent before and it does not work.” Was it Sarah Palin? Rush Limbaugh? Karl Rove?
Not even close. It was Henry Morgenthau, secretary of the Treasury under Franklin D. Roosevelt and one of FDR’s closest advisers. He added, “after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!”QE2 won't work - it will just hurt you. And that has been known for over 70 years. Forget the Wookie suit. It's getting to be time for a ghillie suit.