I am going to say right up front that there is going to be quite a bit
of sarcasm in this essay. I say this simply because of the ludicrous nature
of our marionette-esque talking heads in the mainstream financial press in
this country. They are truly amazing, taking molehills and making mountains
out of them and vice versa. In one segment telling us that there in fact will
be no criminal charges against anyone involved in the HSBC drug/terrorism
money laundering scandal if they talk about it a all
while in the next advocating holding the next ten generations hostage by
supporting the continued subsidy of said corrupt organization et al with fiat
money printed from nothing with the debt placed on the taxpayers tab.
And now we have another London whale the purported
potential end of quantitative easing (aka QE or
QE infinity or QE in absurdum). Anyone who takes the time to go back
over any period of monetary easing in recent history knows full well that the
not-so-USFeds open market
committee is comprised of both doves and hawks. The doves win most of the
battles and this is one of the reasons weve
seen such low (and now negative) interest rates. The doves are also the
reason we have QE to begin with. But the hawks always get their two cents in
too and there are always a couple of them around to put a sense of balance on
things. Otherwise the not-so-USFed might seem irresponsible.
Imagine that! Say it aint
so.
However, we can list several undeniable (unless you happen to be one
of the many brain-dead Keynesian Ph.Ds that US universities relentlessly
crank out) realities that are associated with QE and
what might happen if it were to end. One of the biggest tragedies of the past
half century is that, thanks in no small part to the US financial press, debt
has become cool. There was a time when it was bad
to have debt. Then a mortgage became acceptable, and then a car payment
became acceptable and so forth.
1 Hooked on Debt - If youve ever driven a standard shift automobile (or even
tried) and ground the gears, youll
know what Im about to say
here. Our economy, country, and people as a whole are hooked on debt. And
even worse, theyre now hooked
on extremely cheap debt. Im
talking about debt priced well below equilibrium thanks to massive subsidies
by none other than the USGovt and the not-so-USFed. The fact that nearly all
in the media and most policy analysts continue to ignore is that there is in
fact no free lunch. The taxpayer picks up the tab for every bit of these
subsidies. The government puts it on the taxpayers
bill in the form of blowout deficit spending with no end in
sight. The not-so-USFed puts it on our bill by blowing the supports out from
under our currency and forcing all of us to pay more for goods and services
because the value of our dollar has been so grossly eroded. Think Im lying? Check out the graphic below, right from the
Minneapolis Feds website:
If you take the reciprocal of $23.67 youll
find that the dollar has lost almost 96% of its purchasing power since the
not-so-USFed took the reins a century ago. A dollar doesnt even buy a nickels
worth. Great stewardship huh?
Even our corporations are hooked on debt as the last essay pointed
out. The entire system is engorged with it. So what happens if someone yanks
the punch bowl from the debt engorgement party? The party stops faster than
you can say Jon Corzine. (Sorry Jon, you might have gotten away with that
whole MF Global thing scot free, but were
not letting you off the hook that easy.) Insert the gnashing and grinding of
metals gears inside your stick shift transmission. The party comes to an ugly
end. Mortgage rates and the housing market has a double
dip thatll multiply the
number of tent cities in America
inside 6 months. Interest rates go up and the federal deficit heads for Mars
as interest payments soar. Anyone with an adjustable rate mortgage is buried
because most could barely afford the lower, subsidized rate. Forget paying a
market rate of interest.
QE is the monetary grease that keeps the skids moving, the gears
lubricated, and the party going. In a normal monetary paradigm, lowering
interest rates would accomplish much of this, but were so far gone, we cant do
it on just near zero rates. Nobody wants our junk bonds and so the
not-so-USFed must put on its crisis management hat and play buyer of last
resort.
We are hooked on debt. Ending QE will suicide the USEconomy. And every
single one of these folks knows it. Double that for government politicians.
The idea that these people are incompetent is a bald-faced lie. They know
exactly what the consequences are regarding all of these actions. Keep that
in mind as things progress forward.
Personally I dont
see QE (and with it the current monetary paradigm) ending until the banks own
nearly every capital and/or producing asset in this country via debt,
mortgage, or similar lien. America is between a rock and a hard place; we
need to end QE because doing so is essential to the continuation of any
semblance of liberty. However, doing so will cause massive economic pain.
Pain that few appear willing to endure.
2 Hooked on Profits The
current scam of QE enables banks to ramp up their risk programs to pre-2008
levels with little or no fear of consequences. Any bad
assets, or what we call Oops in the
financial world, will be absorbed by Bennie the Brain and his band of
Bankers. It costs them nothing and dont
forget these banks own the not-so-USFed, NOT the other way around.
This is the ultimate case of Heads we win, tails we still win and
you lose. Who in their right mind would want to end this
kind of a party? And dont
forget Goldman Sachs CEO Lloyd Blankfeins infamous quote were just doing gods
work. Since you mentioned it Lloyd, the God of the Bible
abhors theft, deception, false balances, and pretty much every practice you
guys use to make your billions. Enough said.
We can take things a step further and connect our two major points as
well. It is insanely lucrative to create debt from nothing, and then charge
interest (in the form of future economic labor input). This is one of the
reasons there are so many incentives to use credit. Think of the myriad
rewards programs available to credit card holders either in the form of cash rebates or
shopping cards. Used wisely, these programs can provide an extra months worth of groceries each year just by purchasing
items youll need, then
paying the bill in full at the end of each month.
However, used unwisely, you end up doing little more than creating an
annuity for the credit card company (bank). In short, you work your fanny off
to pay a debt that was created from nothing. It costs the banking system nothing
to do any of this, but if youre
not careful itll cost you
everything.
With all this in mind, does it seem even remotely likely that well see the end of QE or even a slight pullback? The
scariest possibility is that the QE programs are maintained or even extended
while the not-so-USFed asserts publicly that the program has been scaled
back. The institution itself has zero transparency. Our Congress doesnt even possess the intestinal fortitude necessary to
demand an audit. Who is running whom here anyway, you might ask? Continuing
that line of reasoning, the last thing this country needs is another dose of
false hope. Weve already
suffered nearly a dozen years (at a minimum) of false hope and the balance
sheet of everyday Americans reflects that.
Of one thing there is little doubt. The media here in the US will
ballyhoo anything the bankers and policymakers can conjure up and do it with
finesse and more than enough doublespeak, smiles, and good cheer. Their
ratings are in the tank and so irrelevant are they becoming that this very
modest (and largely unknown) column now has more viewers
than the majority of the top ten most watched TV news talk shows. If you think thatll
stop them from pushing the big lies, think again.
If nothing else, hopefully this encourages you to diversify your
sources of information. There are tens of thousands of information and news
sources available. Some are good, some arent.
Judge each by their fruits. There is no possible way to make educated
decisions about anything if your assumptions going in are false because of
bad information.
Andrew W. Sutton, MBA
Chief Market Strategist
Sutton & Associates, LLC
http://www.sutton-associates.net
andy@suttonfinance.net
Sutton & Associates, LLC is a
Registered Investment Adviser in the Commonwealth
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