QE4 is the Drug of Choice

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qe4
(December 2012)

Goldman Sachs recently announced regarding gold, “We see growing downside risks.” Their (GS) forecast for 2014 is only $1,750 per ounce. With their history of lies and deception and their reputation as insiders who front run markets, this looks like a contrary indicator. Perhaps they are preparing to buy at lower prices.

Should we believe Goldman Sachs? My answer is definitely not!

Chris Martenson wrote regarding the announcement of QE4:

“Instead stocks initially climbed but then closed red. Gold was mysteriously sold in the thinly-traded overnight markets and again right after the announcement in large, rapid, HFT blocks that swamped the bids. U.S. Treasury bonds actually sold off on the news. The dollar hardly budged. Commodities were mixed across the board but more or less flat on the day, with the exception of the metals, and especially the precious metals, which were sold vigorously.

The markets are now well and truly broken. Not because they don’t conform to my predictions, but because they are no longer sending useful price signals. Instead, my hypothesis here is that the markets are now just a giant and rigged casino, where a relative handful of big firms and other tightly coupled players are gaming their orders to take advantage of this flood of money.”

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Michael Pento wrote:

“The plain truth is this is a balance sheet recession and not one due to onerous interest rates. More of the Fed’s monetization may be able to bring down debt service payments a little bit further on consumer’s debt. However, it will also cause food and energy prices to be much higher than they would otherwise be.

The damage done to the middle class will be much greater than any small benefit received from lower interest rates. Therefore, the net reduction in consumer’s purchasing power will serve to elevate the unemployment rate instead of bringing it lower.

Rather than aiding the economy and fixing the labor market, what the Bernanke Fed will succeed in doing is to ensure this unshrinkable balance sheet will not only destroy the economy, but also drive the rate of inflation to unprecedented levels in this country.” (Emphasis mine – the DI)

It appears that the Fed will purchase nearly 100% of the government’s new debt for the next several years. The Fed must purchase most of the debt to keep interest rates low. This can only work for a limited time since it is the best political solution when the choices seem to be:

  • Reduce government spending and balance the budget so no new debt is issued. But, there is no political will to balance the budget and force the economy into a depression. (So, NO Way!)
  • Refuse to monetize the debt which will force interest rates much higher so that private and foreign money will purchase the bonds required to pay for the excess spending. This would put additional pressure on the budget since interest payments are an important part of the budget deficit. And it would probably push the economy into a depression. (So, NO Way!)
  • Monetize now, continue spending in excess, pretend it will work, and HOPE the eventual inflation will not anger voters to the point they demand CHANGE in leadership. Clearly, this is the politically preferred option. I do not think it will end well.

SO WHAT DO WE HAVE?

  • Markets no longer achieve true price discovery. Manipulation and management of market prices seems pervasive and often overwhelming.
  • Martenson also states, “When your central bank badly misprices money and then bids up everything related to bonds, nothing can be reasonably priced. Risk is mispriced; the few remaining investors (as distinct from speculators, which are now the majority) are forced to accept both poor yields and higher risk – so we know the price of everything, but the value of nothing.”
  • The political and financial elite have chosen to continue unsustainable spending, unprecedented monetization (in this country), and to burden the population with huge inflation and dollar devaluation in the fairly near future.

WHAT TO DO?

  • Believe it – paper dollars are dying.
  • The financial elite have planned the process. Maybe it won’t work as planned, but don’t bet against it.
  • Protect your purchasing power by moving your assets out of paper and into something real – gold, silver, diamonds, oil, land, buildings, whatever is real.
  • We have been warned!
  • Gold and silver have increased exponentially since 2001. Their graphs are here and here. Expect both to continue rising (probably accelerate) in the face of QE-Infinity and the eventual destruction of paper money.

GE Christenson
aka Deviant Investor

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