Could QE go on forever? I think Jim Sinclair coined the term “QE to Infinity” to mean that the US Fed’s printing of money will never stop. They can’t possibly stop it based on their current thinking and objectives. What they are doing is an incredibly stupid idea, but their choice is basically to have crises soon, or keep printing and hope that the crises comes on the next guy’s watch…even though that means the crises will be bigger than it had to be.
Well, when we put out the August newsletter, we told you all of this. At that time, just about everyone on Wall Street belived that the Fed would taper QE in September. We’re not privy to the inner chamber conversations to know in advance what they will do. (And certainly they could have done some token “tapering”.) But what we do know is the cold hard economic and political facts of the situation. And knowing this helped us to give you the truth when no one in the media or on Wall Street seemed to be able to. We’re reprinting that newsletter for our blog readers here so you can see what we said and how it has played out so far. We’ll have some pretty interesting and far out there thoughts for you in this space next week! (This theory is hopefully not true but a theory of what could be coming with the debt ceiling debate that has some merit even if it’s preposterous.) Here’s the most recent newsletter. If you’d like to receive these yourself sign up in the upper right hand corner of this website where it talks about “The Coming Storm.”
Your August 2013 Kingdom Calling Newsletter
The last two months of Fed commentary & market reaction should have your full attention!
About two months ago the Federal Reserve came out and said that they would continue quantitative easing (money printing) to the tune of one trillion freshly printed out of thin air US Dollars each year by a 10 to 2 vote. However, they also said that…just maybe… they might cut back on their competition with Monopoly for who can print the most bills. And possibly, if the economy is good enough, they could quit this at some point next year.
Now there were a whole lot of qualifiers in that announcement which should have been a big yawner for the market. Instead the markets crashed! Stocks down, bonds down, gold & silver down.
This is very telling. It tells us that the markets are so hooked on the fairy tale of free and easy money, that it is in fact the only thing from keeping the markets from crashing. The Fed reacted very quickly by rushing out and telling the markets not to worry because they’re not really going to stop the printing.
The stock market proceeded to rebound strongly, but the bond market never recovered. I bet the Fed didn’t see that coming. They have far less control of the bond market than they did (or at least apparently did) and that should concern everyone. Because the biggest bubble of all is closer to popping and it’s the one that brings everything down with it. The bond market. (There’s a rumor in financial circles that Alan Greenspan privately said that he wanted to retire so that he wasn’t at the helm when the bond bubble popped. It’s probably also why Bernanke is stepping down after a much shorter tenure. They all know what is coming (they have to, right?) and don’t want to be seen as the one who caused the chaos.
Of course, they both very much are to blame…along with the politicians from both parties who have always pushed on the Fed to “make the economy good”. The Fed has had short term power to do just this, but each time they press the lever, the positive economic results are smaller and the inevitable bounce back down to equilibrium is that much closer and more frightening.
The Fed is in a dangerous place because they might actually believe that this money printing tactic that has never worked before in the history of Man, will work this time to bring the US out of its economic troubles. Or at least, they secretly hope it will work (knowing that it probably won’t) and are desperately trying to convince the markets that it will. It’s a grand confidence scheme. If they can convince everyone it will work, then perhaps it will.
But what we have seen these past two months is that no one is buying that the economy has any health at all without the printing. The market has begun falling again the last two weeks in large part because it is rumored that QE will be “tapered” (lessened) starting in September.
Of course, we’ve told you for some time that it’s impossible for the Fed to stop printing, so anytime they say they will, it should be ignored as foolishness. Since the Fed is by far the largest buyers of US Treasury debt, how can they possibly stop buying it? Interest rates would shoot up dramatically and make the existing debt impossible to roll over at anywhere near the rates we’re used to seeing in recent years. And if this shoots the deficit much higher than the TRILLION it already is, how will that be paid? By the Fed printing money of course!
Look, if there is one thing that the US government is good at, it’s racking up debt. They have the all time record and are adding huge amounts to that record each day.
THIS IS SUCH AN IMPORTANT ECONOMIC FACT, LET ME REPEAT IT….If the Fed stopped buying the debt, then interest rates would spike much higher. This in turn would make the cost of supporting the debt much more unbearable. The interest rates don’t have to reach early 1980’s rates before it’s impossible for the US government to pay its debt service with tax revenue, even if it stopped every other expense. The Fed could maybe stop buying for a little while because the short term affect would be to raise confidence in the world that the US dollar is safer and more people might want to take up the slack in the short term. But in the long term, there’s just not enough money to buy that much debt.
The best, most honest way out would probably be for the US government to declare that they can’t pay their debts & renegotiate those down to something sustainable. They would then have to run a balanced budget because no one would lend to them anymore. The dollar would crash and everyone would have to pull their shirtsleeves up and work hard to crawl out of the hole and in 5 years or so, everything would be much better (admittedly after a whole lot of pain.) However, they will never do this because every politician would get thrown out of office. And so, they will continue to choose option B which is ignore the problem until it is so big that the collapse cannot be ignored and it will be much worse.
We’ve been talking for years about the best ways to protect yourselves, so hopefully you’ve been paying attention. These problems are very real… and very basic economics. The reason everyone is not aware of them is not because it’s complicated but because people have a tendency to believe that we are somehow special and the old rules don’t apply to us. That is how the people of every fallen empire have felt.
The good news is that all this is coming about for great purpose (Romans 8:28). If we love the Lord, we will grow closer to Him than ever before through this season. And many people today who do not know the Lord will come to love Him. It will be hardest for those who do not really love Him because they will indeed have the rug pulled out from under them, but they will get a wonderful opportunity to make a clear choice!
I’m starting a new blog series where I update and perhaps forecast a little on some of the major areas in the economy, market, and politics. Watch http://www.kingdomcalling.com/blog/ starting next week for that series.
As a preview to the stock market post, I will say this…I told you last November that I expected the markets to be up for a while and we have certainly seen that. Going forward, I wouldn’t be surprised if we have a couple more years of overall positive stock market appreciation (I don’t think the end of QE is at all likely. At most they would “taper” for a little while and then probably start printing more than before). That said, there will be some crazy times within that period. We are entering a time of year that is seasonally tumultuous in the stock markets. And we were recently at all time highs. It wouldn’t be surprising if the market had a rough next month or two.
I have no idea where the stock markets will be going in the short to intermediate term. I believe an epic crash is coming and maybe it has already started. But I tend to believe we might have a couple years before we see that. But I also believe that the markets are built on a house of cards and that from time to time between now and the big crash, some crazy winds will knock the cards over. Basically, you’re gambling right now if you’re in the stock market. Hopefully you’ve picked up on some of the ways that we’ve been teaching people to take the risk out of their portfolios.
I look forward to running through the different markets with you on the blog in the coming weeks! God bless you and yours.