Sunday, 16 September 2012

QE Forever

"Congratulations Mr. Bernanke. I'm happy, my assets' values go up. But as a responsible citizen I have to say the monetary policies of the U.S. will destroy the world." Marc Faber, investor, analyst and writer extraordinaire, September 14, 2012

The above reaction of Dr. Faber can not come as a surprise, he has long time warned about the irresponsible actions of the FED in the US, which are further detailed below.

Doug Noland added to this:

If I can chuckle perhaps it will hold back the tears. It's difficult not to be reflective - to ponder how things could ever have come to this. Thursday was another historic day for policymaking, for markets and for the perpetuation of history's most spectacular financial mania. In the past I've noted that, in comparable circumstances, I have viewed my 14-year weekly chronicle of history's greatest Credit Bubble as pretty much a great waste of effort. I have tried to warn of the dangers of an unanchored global financial "system." I've done my best to illuminate the dangerous interplay between an unwieldy global pool of speculative finance and aggressive "activist" central bankers. I have forewarned of the perils of discretionary (as opposed to rules-based) policymaking - in particular highlighting the (long ago appreciated) fear that too much discretion ensures that monetary policy mistakes will only be followed by yet greater mistakes. I took strong objection to Dr. Bernanke's doctrine and framework when he arrived at the Fed in 2002 and protested in vein when he was appointed Federal Reserve Chairman in early-2006.

Instead of moving prudently to rein in egregious Credit and speculative excess, the Greenspan/Bernanke Fed's went in the opposite direction and repeatedly provided extraordinary accommodation. Amazingly, each bursting Bubble led to only more aggressive monetary largess and more power for dysfunctional (Bubble-prone) markets. Thursday's policy move by the Bernanke Fed essentially indicates full capitulation to what has become a highly speculative global marketplace. There is at this point no doubt in my mind that we are witnessing the greatest monetary fiasco ever.

As an analyst of Bubbles, I often quip that they tend to "go to incredible extremes - and then double." Timing the bursting of a Bubble is a very challenging - if not nearly impossible - proposition. Yet this in no way should cloud the harsh reality that the longer a Bubble is accommodated the more devastating the unavoidable consequences. It is, as well, the nature of speculative manias for things to turn crazy in the destabilizing terminal-phase. The past few weeks - with more than ample Bubble accommodation and craziness - really make me fear that eventual day of reckoning.

Another critic is Peter Schiff, who wrote:

With yesterday's Fed decision and press conference, Chairman Ben Bernanke finally and decisively laid his cards on the table. And confirming what I have been saying for many years, all he was holding was more of the same snake oil and bluster. Going further than he has ever gone before, he made it clear that he will be permanently binding the American economy to a losing strategy. As a result, September 13, 2012 may one day be regarded as the day America finally threw in the economic towel.

Here is the outline of the Fed's plan: buy hundreds of billions of home mortgages annually in order to push down mortgage rates and push up home prices, thereby encouraging people to build and buy homes and spend the extracted equity on consumer goods. Furthermore, the Fed hopes that ultra-cheap money will push up stock prices so that Wall Street and stock investors feel wealthier and begin to spend more freely. He won't admit this directly, but rather than building an economy on increased productivity, production, and wealth accumulation, he is trying to build one on confidence, increased leverage, and rising asset prices. In other words, the Fed prefers the illusion of growth to the restructuring needed to allow for real growth.

The problem that went unnoticed by the reporters at the Fed's press conference (and those who have written about it subsequently) is that we already tried this strategy and it ended in disaster. Loose monetary policy created the housing and stock bubbles of the last decade, the bursting of which almost blew up the economy. Apparently for Bernanke and his cohorts, almost isn't good enough. They are coming back to finish the job. But this time, they are packing weaponry of a much higher caliber. Not only are they pushing mortgage rates down to historical lows but now they are buying all the loans!

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