Big question is how far down the road. Brings to mind something about markets can stay irrational longer than you can stay solvent.
This was posted and discussed on this thread http://forums.silverstackers.com/to...e-is-not-printing-money-business-insider.html
Here is Trew's take on this - but I may well be completely wrong - I am not an economist: TARP and QE and all of that is to keep the banks from going bankrupt and causing a deflationary spiral. Banks lent money for assets (housing) that are now worth less (as in lower in value, not worthless) If the banks write off all the bad loans they all go bankrupt - causing a deflationary spiral like in the 1930s. So the Fed bought the bad loans from the banks with TARP (Trouble Asset Relief Program) and now continues to buy Mortgage Backed Securities (MBS) with QE The Fed is taking the bank's worthless assets and replacing them with cash it prints out of thin air. The banks in turn park this new cash with the Fed because they cannot loan it out. Nobody in the real economy has the capacity to borrow any more because their existing debts are already bigger than their assets. Until those debts get written off the economy is debt saturated and cannot increase borrowing - but writing them off will cause a 1930s style depression - catch 22. There is no inflation because none of this new money is getting into the system - it is simply replacing the bank's bad debts. The banks can lend the money, however, to people like hedge funds - which is why the stock markets etc. have been flying. But the US govt is also reliant on debt to fund it's spending - and that money has to come from somewhere. At the moment it looks like the Fed is buying all the govt bonds so supplying the govt with money printed from nothing. If they stop QE then the govt will have to borrow it's money from somewhere - who will keep lending the US money ???? Japan and China might keep buying US govt bonds - but they have their own problems to sort out. If the rest of the world refuses to keep lending the US govt money, what will they do ??? Will the Fed keep printing and keep lending the govt free money ? If they do that, how long will the world keep trusting the US dollar as a reserve currency ? At the same time the Japanese are trying to devalue their currency by half over the next 5 years. Currency Wars coming up very soon. Money printing won't directly cause inflation - yet. Money printing leading to a loss of faith in the US dollar leading to a collapse in the USD WILL cause massive inflation in the US. What would happen to the AUD ? NFI. Australian banks potentially have the same scenario unfolding if the property market tanks. Will the RBA bail them out in the same way ? NFI
QE to infinity ...........and beyond! Aussie house bubble wont crash until the U.S crashes.....and that's not in the near future.
Trew.. The US Federal Reserve Bank has already bailed out two Australian banks in 2008..National and Westpac. Hardly a word in MSM in Australia.. Only disclosure of who was loaned money by the US Federal Reserve brought this to light. IMO it won't be the housing industry that brings Australian banks to its knees but the Derivatives totaling over $700 trillion world wide. Regards Errol 43
Good post Trew. You are correct...no inflation because asset deflation is exceeding any inflation caused by the money creation... They will not QE to infinity because as you alluded to the possibility of loss of faith in the currency which would collapse the dollar and drive interest rates and inflation through the roof They will have no choice but to go to the market and sell bonds but at a much higher interest rate than before. Rates will soon turn in the US and the Fed will be powerless to stop it. On top of this capital requirements of banks will soon be raised and they will have no choice but to raise interest rates to attract capital. All the interference and manipulation can not stop the inevitable rebalancing of the economy which will reflect the truly poor decisions that have been made over many decades by incompetent and corrupt politicians.
So the U.S may not default but other serious economic factors are still coming down the line.....Maybe I should be buying pm's at these lower prices? Maybe there IS serious trouble ahead in the next few years? I thought QE was going to solve the problems for a few years yet?
More serious than what most people would believe. The banking system in Europe and the U.S. is only hanging on by a thread and there is going to be some serious defaults from major banks. The whole banking industry is going to have to be re-regulated again which is going to mean much higher capital reserves. For the banks to raise capital it will have to offer higher rates of interest to attract term deposits ( not "at call " deposits ), this in turn will lead to higher lending rates and lower bond prices. This will cause U.S inflation to spike hard and fast as the government moved to short bonds ( short term debt which must be replaced by bonds offering higher rates) which will increase the interest burden further putting pressure on the bonds. The U.S. bond market is the largest in the world and once the serious money starts to leave this market, it will be looking for a home. Stockmarkets will skyrocket ( inflation adjusted it won't be as high as it looks) and anything tangible will increase in price...food, oil, gold, real estate. This will all input into higher inflation further compounding problems. We will have stagflation as the economy will be stagnant with high unemployment combined with rising commodities. No government in the world has a cure for this condition. Any talk of money printing by the U.S. is dead wrong. For starters the banks will lose the most and they are the ones that control monetary policy in the U.S. and they are not going to want to see thier investment diluted. Secondly, as rates rise and bonds fall, the true state of the U.S will be obvious to most people and the last domino to fall , the u.S. dollar will force even more money into the stockmarket and resources ( only these things will offset the currency losses ). Any attempt to QE will be met with a lower u.S. dollar further increasing inflation pressure. Now you are talking about nationwide strikes, just like the 70's as workers will be desperate to maintain wage/price parity. Precious metals are one of many ways to protect savings. The time is close. Personally I am waiting for about 1030 to 1050 ( full retracement to test the last significant high ).
God help us then..... I told my missus I was'nt going to go near pms for at least six months......Now I'm starting to panic......I really thought QE to infinity would stave off the inflation for a few more years at least.
QE would not be felt in the US at the moment due to the fact that all roads currently lead to the US dollar as the Euro (dead in the water) and the Yen (QE Japanese style ) get pummelled, capital is fleeing as we speak. Look at the stockmarkets. They are rising when all looks grim. This is not an anomaly and a crash is certainly not around the corner. There is a lot of money looking for protection against devaluation ( can't trust governments ) and exiting currencies. The US dollar will be the last to fall. The problem for the US will be when the focus is finally on thier currency ( a year or two maybe ) and then the QE will make inflation worse. As for Australia, our problems will be different. Expect an exchange rate close to $1.50 US due to the fact that resources will be on the move again and our debt levels are not anywhere near Europe or the US. This will protect us from inflation to some degree but will be the death knell for what little manufacturing we have left. The exchange rate in the 70's approached $1.50 so we have been there before. If you can remember we also had stagflation in the 70's as well. If you look at your charts you will find that gold fell from 190 dollars down to 103 dollars in the middle of its last boom. Compare this to 1900 dollars and maybe 1030 dollars....a lot of similarities.
I agree on the possibilities but not the most likely outcome. If the Fed has to choose between continuing QE and the risk of dollar collapse and runaway inflation, or stopping QE and raising interest rates potentially causing a deflationary spiral, they will always go with money printing and inflation - it is the only way out.
they can cut back when inflation starts to take off cause then the debt burden will be lessened but just like the seventies they will have to let interest rates rise slower so real rates remain low to keep juicing the economy.
Oh dear, all this is making my head spin...... I cant keep up with all these possibilities.....At least we are all together here on SS'rs keeping a close eye on all the options and doing the best we can to protect ourselves from all this economic disaster.
Well that is what Japan has been trying to do for 20 years Every time they try to cut the support and raise rates the economy drops again When a country builds up a debt bubble there are only 2 ways I can see out of it Either the debts get written off and the lenders take a loss - which means depression Or inflation eats the debts away over time The US is showing no signs of allowing the first to happen so the second is the only possible future
So high inflation or even hyperinflation will send most people broke anyways so we are still in a very high danger zone in the coming years.......But, Will pms be the saviour that a lot are saying it will be? Good old Bob Chapman used to talk about hyper inflation all the time.. Wish he was still around.
No idea if PMs will be a saviour or not but better to at least be aware of what could happen and not just fly along blindly like most people some PMs can be an insurance policy in case of total crises I mean if you were in Cyprus, holding some PMs would have been very handy
The economy will have collapsed long before hyperinflation ever occurs. If U.S. rates go to 15% for example which is not hyperinflation, the interest bill on debt will be approaching 1 trillion dollars per year which would probably equal total tax receipts. As for easing qE when debt burdens are lessened, this is impossible as the US government run at enormous deficits so the debt is always increasing. The US will have no control of the interest rates in the long term. Regardless of QE, interest rates are a reflection of risk. A great many European banks are on a knife edge and failures are around the corner. The world will have no choice but to raise capital requirements of all banks to minimise risks of failure. Interbank lending will occur at much higher rates due to the fact that banks are far more aware of their own financial positions and see each other as real risks. Capital raising will have to be in the form of deposits (term) and the banks will have to raise savings interest rates to attract money which is being hoarded ( part of the reason the world is deflating at the moment). Loan interest rates will have to rise accordingly. No central bank in the world is capable of preventing this. Don't forget that it is the banks that stand to lose the most money from continuous QE and it is the banks that shape monetary policy in the US. Unless a 3rd party comes to power in the US, QE will not continue to infinity as it will not be allowed to. The Fed is not independant. We all know who owns and controls the Fed and it is not the US government. As for gold being a saviour....it was a long time ago when trading in coins made of gold and silver occured and you now have 2 generations that have no concept about it. Farming land and crops would be a saviour....not gold. It would take a massive shift in attitude for gold and silver to become prominent in the economy as a trusted method of exchange. We all know of its merits but we are a small minority. It may take a few years for the full impact of the inevitable shift in the economy to be felt by the US but the mechanisms which will cause the shift are happening here and now. Just be patient, Euro bank failures are in the pipeline and the pressure on rates is reflected in the abandonment of long dated US bonds pushing up yields. The speed of the rise in US rates will suprise a lot of people. Too much of the debt is short bonds which will be rolled over to ever increasing yield short bonds.
