By Dominique de Kevelioc de Bailleul
Investors waiting for an official announcement of another round of Fed balance sheet expansion may be losing ground in the next leg up in precious metals prices—and in oil and other commodities prices.
Don’t wait for the shot to be heard. Place your favorite dollar-destruction trade now before the mom-and-pop investor as well as the institutional money manager catches on to the next stage of deceptive practices of the Fed.
There’s no alternative to more money ‘printing’, according to Jim Rogers of Rogers Holdings and Marc Faber of Marc Faber Limited.
In the case of Rogers, he says the Fed desperately wants to avoid more “egg on their face” after two QE mistakes, while both men lead the publicly stated comparison between Bernanke and his lead neo-Keynesian cheerleader Paul Krugman with France’s 18th century John Law.
“I do not know whether they will announce it [QE3] or not. They are a little bit embarrassed because they announced QE1 and QE2, and it did not work. So they may try to discuss it,” Rogers told the Economic Times.
“They may just continue to do it without getting egg on their face again, but they are going to print money, they are all going to print money,” he adds. “It is the wrong thing to do, but that is all they know to do.”
Once a complimentary Fed policy tool for orchestrating global money flows, the coordinated actions to manipulate interest rates and issue communiques have now become a huge liability for Bernanke.
It’s now become apparent that $2.1 trillion of officially-disclosed money creation since the onset of QE1 in Dec. 2008 has not delivered that reliable Keynesian magic as hoped. Instead, much of that fiat merely spilled over into the commodities and precious metals markets, in addition to propping up insolvent banks and U.S. stock markets.
As the monetary base expands while real GDP contracts, the Fed must now downplay the evidence of monetization from the layman the best it can. Otherwise, the Fed becomes completely irrelevant to harnessing the market from the superhighway of hyperinflation.
“If you look at their balance sheets, you will see that something is happening, assets are building on their balance sheets and they are not coming from the tooth fairy,” says Rogers.
Early last week, Rogers told The Daily Telegraph that Bernanke & Company “probably have learned how to do things off balance sheet. I have nothing to confirm this, but everyone else has learned how, so they probably have, too. This is just a comment on human nature.”
The Swiss money manager Marc Faber agrees with Rogers’ on the outlook for the Fed’s money printing activities in the wake of $1.5 trillion U.S. budget deficits—along with no plan in sight to drastically cut military and ‘entitlement’ programs.
With more wars on the horizon and an American political class comprised of two parties rolled into one oligarchy in bed with bankers, Washington’s will to alter the course of runaway consumer prices through the destruction of the U.S. dollar’s purchasing power is clear—and was made most clear to those paying attention to a failed Ron Paul presidential campaign and a Simpson-Bowles impasse.
“In my opinion, as far as the eye can see, the Federal Reserve will never again implement tight monetary policies,” say Faber to a gathering at the Mises Institute. They will print and print and print.”
Faber goes on to say that the neo-Keynesians don’t acknowledge that excessive leverage and levels of debt in the financial system are the root cause of the four-year-long global recession, pointing out an eight-page dissertation by economist Paul Krugman published by the NYTimes.
In Krugman’s article, not one mention of the problem of an over-leveraged banking system and excessively indebted economy was made, lead Faber to believe that the implication is: more of the same monetary drug is recommended.
“They cannot afford to have a debt deflation in a credit addicted economy,” Faber continues.
Thousands of years of monetary history show that the road to hyperinflation is political driven, with no politician or central banker (in the case of today’s monetary system) desiring to be in the driver’s seat when the system crashes from its own weight. Each elected and appointed policymaker knows that the ramifications of hyperinflation include civil unrest, violence and revolution—either peaceful, or not. The targets will be on their backs.
“I tell you, sovereign credit in the Western world, they’re all bankrupt,” states Faber. “But before they officially go bankrupt and can’t pay, they’re going to print money and massively so. That should be very clear. That’s the easiest way politically to postpone the hour of truth.”
Americans may fear the truth, but they haven’t experience the pain that goes with that truth—a la Greece, Spain and Italy, to mention a few. As the market for Spanish and Italian sovereign debt now soars along with precious metals, the markets agree with Rogers and Faber: there’s virtually no turning back for the Fed and its complicit partners in monetary crimes, the ECB, BOJ, BOE and SNB.