QE3, A Light on the Future For InvestorsStock-Markets / Financial Markets 2012 Oct 27, 2012 - 05:28 AM GMT
“The challenge for Ben Bernanke and the Fed governors since the 2008 bailouts has been how to deal with the backlog of fraud – not just fraudulent mortgages and fraudulent mortgage securities but the derivatives piled on top and the politics of who owns them, such as sovereign nations with nuclear arsenals, and how they feel about taking massive losses on AAA paper purchased in good faith.
On one hand, you could let them all default. The problem is the criminal liabilities would drive the global and national leadership into factionalism that could turn violent, not to mention what such defaults would do to liquidity in the financial system. Then there is the fact that a great deal of the fraudulent paper has been purchased by pension funds. So the mark down would hit the retirement savings of the people who have now also lost their homes or equity in their homes. The politics of this in an election year are terrifying for the Administration to contemplate.
So, it looks like the Fed decision last week to buy $40 billion a month in mortgage paper is the ultimate plan to clear the market once and for all of fraudulent mortgages, mortgage backed securities, and related derivatives. This means Fannie and Freddie will be bailed out and winding down through the back door. This means the big banks may be paid in full for your mortgage. It also means your pension fund assets will not be marked to market – at the price of debasing the purchasing power of your assets and benefits.
The Fed is now where mortgages go to die. …As this happens, trillions of dollars that have been amassed offshore will be free to come back into the US to buy up and reposition land, farmland, residential, and commercial real estate and other tangibles. With documents shredded, criminal liabilities extinguished, and financial institutions made whole, funds can return without fear of seizure.
QE3 proves beyond any shadow of a doubt that the extent of the fraud was as bad as I said it was. You can count up the bailouts. The QE1, QE2, QE3 the numbers speak for themselves. The fraud was indeed in the many trillions of dollars. It was intentional. It was a plan.”
“QE3 – Pay Attention If You Are in the Real Estate Market”
Catherine Austin Fitts, solari.com, 9/17/2012
Critical recent Developments reveal likely future ones important to Investors; that is, they shed a Light on the Future. The recently announced U.S. Attorneys civil suit against Countrywide/Bank of America alleging Fraud lends credibility to Ms. Fitts claims which were written before the suit was announced. And the Civil Suits against the Mega-Banks for rigging LIBOR lend credibility to her claims as well.
But what is important to note also is the inconsistency, once again, between The Fed’s public justification for QE3 – to help the Economy and Reduce Unemployment – and The Reality.
If The Fed’s Disinformation were not about so serious a matter, it would be almost as laughable as Mario Draghi’s comment that the Central Banks’ QE was not inflationary, because, he claims, the threat to the Economy is Deflation not Inflation. In fact the repeated QE’s have done next to nothing for the Real Economy, and increasingly have provided decreasing boosts for Wall Street Financial Assets. But, they are already increasing Real inflation which is already 9.64% in the U.S. for example. (Note 3)
That is, “the debasing of the purchasing power of your assets and benefits” will be the Reality going forward. As to where the QE and related Central Bank actions are leading, billionaire investor Frank Giustra, has given us an excellent summary as related by Matt Badiali.
“Giustra is a giant in the resource world. A noted philanthropist, he is the founder of a major Canadian venture capital provider for mining stocks, Yorkton Securities... gold producer Goldcorp... gold and precious metals producer Wheaton River... and independent film producer Lionsgate Studios.
In his talk, Giustra said that with QE3, the Fed "crossed the Rubicon." In other words, there is no turning back from this money-printing strategy. He believes it's the end of the U.S. dollar, and that it marks the start of one of the largest transfers of wealth in history.
In his view, the Fed is now boxed in on three sides... by excess liquidity, artificially low borrowing rates for the federal government, and its own balance sheet.
All the money printing will add too many dollars into the system. And the only way to rid the world of that excess liquidity is to raise interest rates, which will kill any economic rally.
The federal government allows itself to borrow money at rates far lower than anyone would actually lend money to them. That means if the rates are allowed to float normally, they will soar. And if the government has to pay interest at those high rates, it won't be able to pay off its debt.
The Federal Reserve's own balance sheet is leveraged 51-to-1 with long-dated, illiquid securities. In other words, for every $1 it holds, it has borrowed $51. That debt won't trade at face value, so it can't be easily sold. And it's sensitive to rising interest rates. If rates rise, that debt becomes much less valuable... and the Federal Reserve could be insolvent.
According to Giustra, the government will not be able to pay off its debt. It's only choice is to keep printing money... And that, he says, will lead to a hyperinflation event.
Giustra says the only reason we aren't seeing inflation now is due to the "speed of money." According to Giustra, money is not moving right now. No one is lending, no one is investing... so the speed of money is incredibly slow. And that's why we haven't seen a massive inflation yet.
His guidance for investors is to stay away from the dollar... and buy commodities. In his interview at the conference, Giustra cited a study of the 1970s inflation that showed the four best-performing asset classes from that period...
- Rare Art
When pressed about his own investments, he said his No. 1 is gold. It's his largest position and will remain so until this cycle ends.” (emphasis added)
Matt Badiali, S&A Junior Resource Trader, 10/22/2012
Giusta is mainly correct, and especially regarding the probability of a “Hyperinflation Event,” a point which we have been making for many months now. Giusta’s inference “stay away from the dollar” is also correct. And we also agree that the best performing asset classes going forward are likely to be the precious metals and agriculture. (Regarding our specific Recommendations see Notes 1 and 2.) But we doubt Rare Art will perform as well as in past Inflations.
Indeed, bad news for holders of U.S. Dollar Denominated Assets is that Major Economic Players are already moving away from the $US as World’s Reserve Currency. China, for example, has made deals with several other countries that transactions will be made in renminbi.
And some countries are already rejecting the $US entirely for certain transactions. Both DBS Bank in Economic Powerhouse Singapore and Nordea Bank in Sweden, for example, both recently refused to comply with the Swaps Registration provisions of the USA’s Foreign Account Tax Compliance Act.
These developments hasten the move away from the $US as the World’s Reserve Currency. Investors take note.
As well, going forward Investors will have to continue to contend with Bogus Official Statistics (see the Real Numbers for the U.S. below in Note 3 per shadowstats.com) and with Cartel Precious Metals Price Suppression Attempts (see Note 4).
So in addition to hyperinflation and a dramatic reduction in the Purchasing Power of the U.S. Dollar and Bogus Official Statistics and Precious Metals Price Suppression attempts, Investors have one more Reality to Face.
Major Sovereign nations not only cannot pay their debt (likely including the U.S., U.K. and France), but some likely cannot even play interest on that debt, under any reasonable assumption about economic growth or lack thereof.
Money Printing is only a flawed “Solution” because it is leading to Hyperinflation. The other is partial or total Debt Repudiation, following the example of Iceland.
“While regional independence is superior to both the failing European Union and the façade of special interest controlled democracy, one further action should taken by any jurisdictions that choose secession: Newly restored sovereign nations should repudiate their share of the illegitimate sovereign debt when they exit existing unions and nation-states. Created by distant banking elites buying national politicians and parliaments to load up on sovereign debts that can never be paid off, this massive national debt load is illegitimate and destructive to existing and new national economies.
The first nations to repudiate sovereign debt will have the advantage; this is why restored nations should repudiate these debts and not burden their new national economy and citizens with this junk debt. In addition, these nations should repudiate their existing politicians and representatives, controlled by the financial elites who supported the debt accumulation; because once independence is restored there is nothing to stop politicians on the take from doing the same thing again.
Although the establishment press issues many negative news accounts about secession fever sweeping Europe, I believe this is actually a positive political development and possibly the only solution to the sovereign debt crisis. For instance:
The Return of the Venetian Republic?
Catalonia Secession From Spain
Bavaria Interested in Secession
Europe's Richer Regions Want Out
Secessionist Wave Sweeps Belgium
Flanders Wants Out of Belgium
Scotland Seals Terms of Historic Independence Vote
Some Want Out of the USA
It is time for the restoration of formerly independent countries, each with their own unique cultural and ethnic heritage, that were forced at gunpoint into larger empire states. My recommendation is to leave most of the illegitimate sovereign debt behind when they go.
Venice wants out of Italy, Catalonia out of Spain, Bavaria out of Germany, Scotland and Wales want to leave the United Kingdom, the Flemish want out of Belgium. Even Vermont and some in the South want to regain their former status as sovereign republics separate from the most debt-ridden empire in world history, the United States.
Just as important, Greece, Italy, Ireland, Spain and Portugal – and there are even demands in Germany itself – want to leave the EU and euro witches' brew created by their leaders. After all, the EU is a failure and these member nations may have to leave the European Union and restore their national currencies in order to grow their economies once again.
The Necessity of Sovereign Debt Repudiation
Once austerity measures and tax increases have bankrupted most of the private sector and the current sovereign debt crisis reaches critical mass, then every nation will repudiate most of its debts as well as renege on promised health and social benefits. Newly sovereign nations can act now to position themselves with a distinct advantage when this occurs. These nations will have been able to limit austerity measures, reduce confiscatory tax increases and safeguard their citizens' private wealth by repudiating sovereign debt. If these steps are taken immediately upon independence, they should be able to avoid the majority of economic collapse caused by the coming Western sovereign debt repudiation.
Most of the countries in the West will eventually default on their sovereign debts using a war or financial crisis as the excuse. Like the Reichstag fire under Hitler, the excuse can be either a manufactured black-flag event or a policy readied in advance and implemented when the right excuse comes along.”
“Secession Fever Sweeping Europe”
Ron Holland, thedailybell.com, 10/24/2012
So one Main Battle going forward will be over who takes the Hit – the Mega-Banks or the Taxpayer. So far, Taxpayers have been the losers, but the public anger is building and that may change. The Icelandic Model may eventually predominate.
Finally, regarding Investors Deployment of the Assets, consider the recent Action of the German Government.
A German federal court has said that country's central bank should conduct annual audits and physically inspect its gold reserves worldwide, including gold in the custody of the Federal Reserve Bank of New York. In addition to the FRBNY, Bundesbank gold is stored in London, Paris and Frankfurt.
For decades, the Bundesbank has relied on written confirmation of its gold holdings in London, Paris and New York. According to the report from the German audit court, the last time Bundesbank officials physically inspected the central banks gold holdings was, well, never.
“The Germans Are Coming for Their Gold”
Published: Wednesday, 24 Oct 2012 | 5:10 PM ET
John Carney, Senior Editor, CNBC.com
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