Search This Blog

Wednesday, February 29, 2012

QE addiction or "How banks get that next 'fix'?

Everyone in the western world is doing some form of Quantitative Easing which basically is a fancy 25cent word to describe creating money out of thin air, backed by nothing tangible to be pumped into a financial sector that without such funding, would be the equivalent of  a wretched, dying animal gasping for last breath as maggots circle about.

And when it comes to the financial industry-- Deservedly so.

Great Britain did it last month.. again. The Bank of England extended the program in February 2012 by £50bn ($79.58 bn US), taking the total size of QE to £325bn ($517.23 bn).  And what was the end result besides interest rates at 0.5%?     An unemployment rate of 8.4%.  The headline from The Guardian UK, Feb 15th says it all-- "UK unemployment stuck at 17-year high as economy flatlines"

The European Union does QE too..  We wrote last week that basically the Fed and the ECB did a 'swap' of euros to dollars in the form of a loan as a condition to build up its firewall to the blowback which will come once Greece is forced to default on the 20th of March.  This cash inflow allowed the bank today to 'lend' about half a trillion euros to 800 European banks which are still 100% dependent on this money to survive, while of course pretending to the general populace, they're strong and sound.

Now onto the good ole' USA.  Bernanke spoke before Congress as he's required to do every month and announced...

No QE3... yet.
Gee, that's strange... wonder why?

Well the long and short of it is, QE is injected when the economy both is bad in a real sense and more importantly Appears outwardly bad enough to affect the market adversely and for everyday people to feel discouraged.   So what do we have now?  Well the economy is still very, very bad in reality.  Problem for 'Bastard' Ben.. the perception is things are improving.

See, in 2009 through 2011, the economy was manipulated by the Fed and Treasury to appear we were in recovery due to intervention, so no one would get too upset as all the money was being funneled up to the very top 1%. Without the Fed and Treasury saving the day, where would we mere mortals be??

 In 2012, its being manipulated by political pressures, which are entirely different.  Those involve a particular incumbent desperate to be re-elected by fudging every meaningful statistical economic barometer to give the impression of improvement on his watch though he's made things worse in reality.

For instance, the Fed pretended it wanted lower unemployment, but really it was quite happy to see figures in the 9-10% range.. gave good political cover to issue QE 1, 2 and 'Operation Twist'..  But now?

Well the Bureau of Labor Statistics skewed its figures back in January down a full percentage point based on a statistical alteration of treating millions of unemployed people too discouraged to look for work as magically Not unemployed. So the media blasts 8.3% unemployment as 'wonderful news!' and most simple people accept it as so,
Then, as we discussed yesterday, the Consumer Confidence board stated after surveying 5,000 people out of a population of 310 million, that the confidence of the US shopper is on the rise by a large margin, which helped buoy the stock market to 13,000 for the first time since 2008  (Of course it dropped 50pts today on the news that no more free Fed money was coming down the pike anytime soon...)

So where do things stand?   No QE 3..yet.  Bernanke wants it.  The banks want it.  The financials.. the traders.. the investors.. the rats n' the roaches.. they all want it..  Expect it.

So if you lived in the world of the financial power elites, how do you ensure you get QE3?  Well you start by selling stocks...100pt drop here, 200 pt drop there... you show a pattern of unsustainability in the market; you create a mild form of fear that things will get worse without more injection of capital.

Next you contact all your 'bosom buddies' in the corporate shill media and you instruct them to hold off the pollyanna headlines for a few weeks.  Perhaps they do some stories about people on food stamps or families struggling to keep their home..  pull on some heart strings, as only the TV can do.  Whatever it takes to create a mood of unease yet everything Must be within the framework of a "recovery"..

After maybe a period of 4-6 weeks of this, it would allow Bernanke to release another trillion (maybe two.. maybe three) into the financial sector.  Already given them $7 trillion.. what's a few more?   Its never going to be repaid.. never was meant to... money in a hole to keep the financial industry breathing while no one does anything to fix the situation or deter bad financial behavior.
This game will never ever stop.  There's no political will for it to, and people can't vote out a Fed Chair. In fact, when a President chooses a nominee to run the Fed, they provide the list of candidates-- the President must choose one name off it.  That's why so many Fed chairs end up serving both Democrat and Republican Presidents.  Talk about being in lockstep!

The only real chance to stop Fed spending outside of magically passing legislation to break up the Fed, is when the time comes, enough Senators have the courage and guts to not support a debt ceiling increase.  That stops the funnel of money instantly.

We hate being such 'Debbie Downers'..  Just giving people a view into the future.  One does not have to be Nostradamus to see what to expect in March and April.   Remember folks, nothing the Fed does is for your behalf, and if you do ever benefit from their policies, oh its quite unintentional.