Sunday, September 16, 2012


The Fed's recent announcement of $40 billion a month in quantitative easing for the indefinite future is nothing more or less than a declaration of war on the bottom 99.9% of the world's human population.

As the big money piles out of agency mortgage-backed securities into the commodity markets, the real economy will suffer.  The cost of everything needed to live will rise.  The cost of everything needed to make things will rise.  The result will be reduced consumer spending on discretionary items (because the money is needed for food and energy), increased production costs (because precious metals and other industrial base materials are rising in price), and increased unemployment (and overall suffering).

To most people, rising prices means inflation or "stagflation."  That's because most people believe in the fairy tale Quantity Theory of Money.  Prices these days are rising purely on leveraged speculation, and this form of -flation is more properly called "screwflation" because the Fed is screwing everybody in the world to maintain and even inflate fictitious asset values.

Real people must die so fictitious asset values may live.

Here's the Fed's quandary: deflation is no longer manageable.  The collapse of the US housing market is inevitable, and QE-infinity is designed to get soon-to-be toxic assets off the books of the big banks, who own 25% of agency MBS valued at roughly $1.3 trillion a year ago.  See here.  Most commentators argue that the Fed is trying to ignite another housing bubble, i.e., that the Fed's monthly purchase of $40B in agency MBS will cause the banks to further lower mortgage interest rates and increase lending so that there are more mortgages to bundle into MBS.  While we may see interest rates go down, there's no reason to believe that we will see an increased demand for mortgages, even if the banks are more willing to lend.  Certainly, the data show that prior QE efforts that targeted the purchase of MBS seemingly had no effect on the levels of mortgage debt outstanding, which has declined year-over-year since 2009.  See here.  At best, QE-infinity is designed to keep the US housing market treading water so the TBTF institutions have the opportunity to minimize their exposure to it.

The Fed is purposefully turning itself into a "bad bank" that holds all the toxic assets of the TBTF banks.  Of course, once people realize that the Fed is a bad bank, what will happen to the value of a Federal Reserve Note (aka, the US dollar)?

For the first time ever, I believe something akin to hyperinflation is possible here in the USA.