do you think the FED will do QE3 sometime this year?

I put a strong likelihood on QE3 this summer, but it doesn't have to happen. There is always the possibility of negative yield bonds that the Fed can buy which will require payment to continue to hold them. It will be the QE that keeps on giving without being nearly as overt. Nevertheless, 16 of the 21 primary dealers for the Fed are predicting QE3 this summer, and Jan Hatzius of Goldman Sachs is one of them. GS is who really runs the world according to some, and if you look around at the positions of power their alumni occupy it is a pretty easy pill to swallow.

The 3rd installment of Quantitative Easing, not just money printing, but also using that money to buy US Treasuries. It has a two fold inflationary effect, and which is the greater culprit is largely a mystery, at least to me. Inflating the money supply is the primary reason, but as soon as everyone knows that is going to happen they start digging in taking long positions and driving prices up so it's hard to tell what's legit and what's speculation. Regardless, QE1 (the patch for the economy in 2008) and QE2 (the next shot in the arm to prevent the first QE bubble from bursting) are mostly responsible for the move in silver from $8 to $49 as I see it. QE was the shot in the arm needed after the housing bubble, which was the shot in the arm after the dot com bubble. This has been building up and the perpetuation must continue one way or another to avoid letting the air out of the bubble, which is the end result market equilibrium desires barring the absence of hyperinflation. What else will QE3 do? It will prolong our ability to live beyond our means. It will stave off default on the debt. It will raise the cost of living for every US citizen. And it will raise the prices of all assets, precious metals included. I feel like precious metals have more upside because once they are seen as safe haven by people en masse the supply figures will start to play a factor.

 

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I don't consider high rates of inflation to be a certainty. It's probably a 50/50 proposition depending on policy decisions that have not been made yet. High levels of debt normally end in deflation, unless specific steps are made to inflate. I know that in the past this sort of situation has sometimes led to default and sometimes led to hyperinflation, but in those cases, the central bank had fewer tools to manage than they do now. Probably the biggest error made by the gold bug/economic collapse bloggers is to underestimate the Fed. I know it's fun to pretend to know more than the central bankers, but get real folks.

 

Been there done that. There was significant deflation taking place in 2009 due to the high amounts of private debt that were collapsing, which caused the S&P to drop to the 600s. The Fed was out of tools and thus embarked on the Japanese inspired QE1 which was later followed by QE2. This caused huge amounts of monetary inflation and they achieved their goal of getting the S&P back to 1400+. I don't think anyone who truly understands this would ever boast about knowing more than the Fed. Such comments are nonsense. The math can't be denied. It's apparent, to anyone paying attention, they will do anything and everything regardless of the destruction it brings to the common person, to preserve the stock market and the finance industry. The results speak for themselves, one only has to be willing to look.

 

I love those guys...also the ad at the beginning, for Free Enterprise Alliance, is exceptional (albeit generic and brief) information for our generation's children. Should be required viewing for all, in every public school. Here's their site: http://freeenterprisealliance.org/ [I don't know anything else about this .org, except what you see here.]

 

It's complete nonsense to believe that permitting the stock market and banking sector to collapse will benefit the common person. The math can't be denied, and things are better now than in 2009 when even money market funds and insurance companies were on the brink of collapse. If you want to find the cause of the problems, look to the common people who all want the government to give them more than they are willing to pay for, and the political snakes who grant their wishes to stay in power. Don't blame the Fed for using the tools available to them to keep the system together against this insanity. They aren't perfect. But they are the only adults in the room.

 

I like your post and analogies it contains. But, if we are heading towards higher inflation, your calculations may be incorrect. And it is not your fault. The feds have changed the way that inflation is being calculated these days. In other words we are being lied to (surprise, surprise). This has given us a false sense that the country is economically sound. Plus, we were able to stimulate most economic recessions with interest rate reductions in the past, which really is no longer an option this time. I'm not trying to be pessimistic, but I think we are in uncharted territory.

 

I was with you until this:

I don't know exactly how the FED works, but IMHO the decision makers are complicit with the politicians in the problems we're having. The alternative? Whistle blowing. Telling the public what's really happening... but that's not happening. And maybe never. Every schoolchild should be required to read this bit of history: http://mises.org/books/inflationinfrance.pdf The talking heads will create public perception until history can be written.

 

It did in Iceland. They are debt free and experiencing real growth too. While you have your opinion (interesting you don't consider yourself an adult), there is a real world example.

I am a believer in letting the free market, i.e. capitalism, deal with failures. Whenever a central authority tries to replace capitalism with cronyism, disaster strikes as we see now.

 

The way I see it is simply we have a Government full of people that do NOT care about spending money...they just want to keep being re-elected and are willing to bribe voters with benefits like food stamps and welfare and other crap that just allows the voters to sit on their butts...

The fed is only helping to keep the country solvent...keep in mind the only real way they can...to add to what cloud said being that the Fed is the only adults in the room with a bunch of kids with credit cards constantly charging away and Bernanke is just paying off the interest on those cards to keep the credit line open and giving the USA solvent having to help keep the the real problem is we need to stop the welfare stupidity...we cut out entitlements and can still keep a strong military to keep us safe and basically just start gutting much of the over bloated government and problems would be solved...

course the real problem is actually finding people that will and CAN do that...most people go to Washington D.C. and just get corrupted or are blackballed as throwing grandma off a cliff Edited, political opinion.

 

The ironic thing, if you read Inflation and Fiat money in revolutionary France, is that the smartest guys in the room (I think they'd be called economists today, NOT the politicians) also loved their country...and then turned out to be sell-outs by pimping (through glorious rhetoric) the quantitative easing of their day...and then found the guillotine.

 

Except that the real numbers don't support your conclusions.

First, you are confusing government spending with money printing. The US government will borrow $1.2T this year. Of this, only about 50% is being financed by the Fed, so $600M. The rest of the debt is being bought by other countries, institutions and even individuals (such as everyone with a savings bond). US government debt is considered an "asset" by the all these parties because it is directly backed by the US taxpayer.

On the other hand, "money printing" occurs when the Federal Reserve decides to increase the money supply and it's got nothing to do with US Treasury debt or spending. The Federal Reserve conducts its own monetary policy and it isn't subject to congressional or presidential review or oversight. Since the financial crisis of 2008, the money supply as made available by the Fed's QE processes and other tools was increased by 30% and currently stands around $9T. This number dwarfs the $0.6T loaned to the US Treasury by the Fed. The Fed is creating this currency to protect the TBTF banks and to prop up the stock market as it has decided on its own, this is the best way to fix our economy.

Furthermore, the US government doesn't need the Federal Reserve to remain solvent. The US Treasury is perfectly free, as defined in the Constitution (which people don't seem to read) to resume printing all the USD the government needs to conduct business. They have not used this right since 1971 however.

In other words, if the US government miraculously balanced the budget this year and for the rest of the future, it would make absolutely no difference to the problem we are discussing because this isn't where the problem lies. Hopefully this might have given you something to think about rather than the dogma about government spending priorities.

 

Iceland has a tiny population. There are few companies that derive a major part of their business from Iceland, or rely on the capital markets of Iceland to fund their day to day operations as there are in the US. There is no way the type of intentional collaspe of the financial sector in the US would go as "smoothly" and it is a fabrication on your part to suggest it would.

 

Greenspan and Bernanke have told Congress for many years that their irresponsible fiscal policies were damaging the US economy. It's all in the Congressional record. It's been replayed on CSPAN. But people just don't care and prefer mindless entertainment to thinking. I agree that the Fed is "complicit" but that is their congressional mandate - to preserve the financial system, control inflation, and mitigate unemployment to the best of their ability regardless of how irresponsible the goverment, people and bankers might be. That's why I called them the only adults in the room. They are doing what they have been created to do. The federal government has failed the American people, and the American people have failed themselves.

 

You are simply tap dancing now as you gave a general statement which all of a sudden isn't general. Nobody has said a currency collapse would be easy. Try responding to what was posted.

 

This is the type of thing that people say who have no real point to make relative to a bullion investing forum. While you may consider yourself a failure and are sitting there believing everything which the banksters tell you, it doesn't mean the rest of us should follow your example. What the Fed, the government, and the finance system does is beyond the control of the people and the point of these discussions isn't to change it. I recommend you head to a political forum for that. The point is how bullion investing can be used to address and take advantage of the actions of these people. You never seem to get this which is why, I suppose, you constantly pepper your posts with these sorts of insults.

 

Problem know i don't see where the growth is going to come from to warrant such increase in debt. Debt is not bad as long as it is offset by growth (i.e Brazil). IMO unlike the 70s or 90s American demographic is changing, we have an aging population of baby boomers and younger generation that IMO lacks the skills or the work ethic to compete in this world economy and not to mention growing social and welfare programs that also contribute to this. US is going thru the same thing that happened to Japan and they haven't recovered from their lost decades'.

 

Why don't you address the real point instead of dodging as you always do. Iceland is not a major source of financing for corporations. If a similar collapse occurred here, thousands of corporations would lose their major source of financing from issuing stock, floating bond issues and short term financing through the money markets. An unknown number of people would almost immediately stop receiving paychecks when the financial systems freeze and interbank lending stops. THAT is the issue, and just stating that it won't be easy doesn't cut it for any thinking person.

 

If you a actually make a point relative to the topic then I will address it. In regards to Iceland, you simply have no idea what you are talking about. Iceland was at the center of one of the largest bank failures in Europe and at least two countries, including the UK had to cover 1000s of accounts because of it.

 

The analogy I would use is one of a buggy computer program. If your computer is not functioning properly, what do you do? You reboot it and start fresh. You don't keep running the buggy software and expect it will resolve itself without fixing the problem with your code.

The financial system that we have today is parasitic in nature, siphoning wealth from the common people through high frequency algorithms, or through inflation, or through compounding interest that cannot possibly be paid back. By its very design it is intended to put people into perpetual debt servitude. A collapse would not directly benefit people, but it must happen in order to resolve the problems. My concern is that the old system might get replaced with an even worse one.

I don't place blame on the Fed for what is happening today, but I do place the blame on the bankers who control the Fed, the politicians, and the corporations. As I see it, they are all snakes in bed together. What the Fed should do is stop enabling this broken system, otherwise even if they are supposedly innocent in all this, it makes them no better. The person who brings a cake to an inmate with a file hidden inside of it so that they can break out is no better than the criminal.

 

One analogy I like is re: the Great Depression, the New Deal, and WWII. Wherein QE is analogous to the ND which actually extended and deepened the GD. Of course it's not that simple...and yet, what will be our WWII? Some people have said it will be some sort of cheap energy breakthrough, which I write about here: http://billofgrace.blogspot.com/2011/09/obama-shock.html by comparing "Nixon Shock" to Obama, both pro (technology) and con (fiat).

ETA: Another analogy I like: the use of heroin to treat morphine addicts in the late-1800s and early 1900s...

ETA: just read Gold Problem Revisited...wow! great info here: http://www.goldstandardinstitute.net/

"These ‘competent’ and ‘honorable’ gentlemen at the helm are complete ignoramuses when it comes to gold. They have no notion of the erosion of the gold basis and the irresistible march..."