With the pop from the U.S. Fed’s latest attempt at financial shock and awe already seeping from lackluster markets, and the teleprompter news networks losing steam over their promotion of the same, it is time to take a look back at the decisions made on 9/13/2012 and set the record straight on some things.
So says Andy Sutton (www.sutton-associates.net) in edited excerpts from his original article* entitled My Two Cents – “QEunlimited, China, and Depression 2.0”.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Sutton goes on to say, in part:
Perhaps one of the biggest misconceptions about all this easing is that it is somehow going to help the economy. To stimulate it. To bring it out of recession (yes, we’re still in recession). None of these things happened with the first two, but there are some very good reasons it won’t happen with the third – and the truth is there is a much more gruesome component to this latest scam.
What happens when the USGovt or banks buy up toxic mortgage securities?
1. They’re buying the note on your house – along with thousands of other notes since they’ve all been bundled up. You signed on the dotted line with Bank of America for example, but now maybe the Chinese own your house, or the Japanese, or European bankers, or the USGovt. So the Fed creating another $40 billion (that they’re willing to admit) each month to buy more mortgages ought to be a pretty scary thing. Will they foreclose on you if you can’t make your payments?
2. It gets better! So now we’ve got banks with an extra $40 billion a month to play with. The notion sold to a comatose public is that this is good because the banks will lend the money to Main Street and this will save the economy. We’ve already shot that theory full of holes a dozen times and I’m not doing it again. What is curious though is that the banks aren’t going to lend the money out at all and this was never the intent. Instead, the intention is to use the majority of it to buy – you guessed it – USGovt debt. That’s the agreement that has been forged. Don’t forget that the Fed works for its member banks – and regulates them too.
3. If you’re still not doubled over in laughter, this group is going to monetize $40 billion a month (again at a minimum) of government debt while patting themselves on the back and telling us how great they are because they’re preserving our banking system, without which we could never survive so we’re right back with QEU where we were with the previous QEs.
There is no intention of the USGovt to ‘get right’ and straighten its fiscal house, regardless of what the stuffed shirts tell you during their debates and campaign ads. The USGovt is a junkie, and is going to be getting a minimum of a half trillion a year in direct monetization above and beyond what its already getting.
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The devil is in the details though.
1. If the USFed simply gave the $40B/month to the banks for their junk and let them take the money and play in the financial markets, we’d see stocks, bonds, commodities, and so forth rise. Common people who were invested in these markets – what few of them are left – might have a small chance of benefitting somewhat. However, by going through the government stimulus route, the GoverBank is ensuring that the vice that is already on many consumers is only going to get a little tighter.
2. Traditional QE has been proven ineffective at creating jobs. The few jobs that have been ‘created’ by all the stimulus to this point have been make work, part-time, or temporary in nature. Even the cooked government numbers bear that out. What QE has been effective at doing is tightening the screws on the majority of the country through price inflation. Nothing crazy yet, but everyone is noticing. Your elected officials know this and simply don’t care.
3. Let’s get back to the idea of the USFed or some foreign bank holding the title on your home….The media has gone almost totally mum on foreclosures – as if the problem no longer exists. After all, we have donkeys chasing elephants around on stages all over the country; trying to convince you their way to ruin is best. Given the unlimited nature of QE on a global scale, it stands to reason that by the time this is over, the Fed [see the chart below] and the rest of the central banks around the world will hold the title on every piece of mortgaged real estate out there….
4. The progression is pretty simple. You take a mortgage with a small community bank who then sells it to a packager who rolls it up with a couple thousand other mortgages and in layman’s terms, it is sliced up and sold to various economic agents. The slices throw off interest as you make your monthly payments and so forth. Just like a traditional bond. Well, a bunch of these slices are no good and are being purchased by the USFed. Foreclosures are happening. Who owns the property now? You never owned it. You were renting it first from your community bank, and now from the USFed or whichever other entity owns your property. Some of these properties are sold to vulture funds and you can pay them rent to live in the house you once thought you owned – and our government pushes this as the American Dream? Don’t kid yourself for a second; the USGovt is quite the landlord as well, through Fannie and Freddie.
5. Just keep all this in mind while you bust your tail 40 or more hours a week if you can get them to make your mortgage payments. Your house, along with most of the rest of the property here in the U.S., is owned by people who did nothing to work for it. They simply typed a few keystrokes on a computer, declared themselves to be rich, and bought you out. I’ve said this many times before and apologize to those who already understand this, however, most still don’t – or refuse to – and so we’re going to keep hammering it until everyone gets it.
*Source of original article: http://www.sutton-associates.net/issues/mtc_2012/mtc_10122012.php (Andy Sutton is the Founder & Chief Strategist for Sutton Associates, a Registered Investment Advisor in the Commonwealth of Pennsylvania.)
Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
The Fed professes that QE 3 or as I call it, QE Infinity (QEI), will create jobs but I am not sure how they can expect anybody to buy their rationale. As we know, QE 1 and QE 2 did very little in the way of creating jobs. Might the Fed realize that QE Infinity could actually be counter-productive to economic growth?
The choice facing the leaders of the world’s largest economies is a simple one: Either they engage in massive money printing, or they let the world slip into another great depression. This article examines why they have no choice but to print money, something which will have significant consequences for everyone. Words: 560
While the Fed’s third round of quantitative easing is fairly aggressive it is unlikely to have a significant impact on the economy – especially if policymakers in Washington lead us over the fiscal cliff. Where QE3 may have an impact, however, is in the commodities market, and in particular gold. Here’s why. Words: 400
In the US the Fed announced Q-Eternity, a $40 billion per month injection of funds with no end date other than “as long as it takes.” If economic recovery is meant by “as long as it takes” there will be no ending because no economic recovery is possible from such policies. Very high inflation will eventually stop the Fed, although it will further impoverish the middle class. If they wait until hyperinflation, the economy will collapse and fixed incomes and savings will be wiped out.
A recent short Wall Street Journal article included a chart that simplistically shows what is said to be the essence of the economic thrust of quantitative easing. The chart, reproduced here, is worth studying and thinking about.