Posted on 11/04/2010 7:58:39 PM PDT by luv2ndamend
Well, it’s official, Ben Bernanke has officially gone “all in” regarding currency devaluation in the name of pumping the stock market. I have to admit, even though I knew this was going to happen, I’m still in shock. After all, it’s not every day that you see a superpower collapse and lose its reserve currency status courtesy of a deranged mad man.
Regardless of your feelings on the matter, these are the cards the Fed has dealt us, so rather than devote space to critiquing our insane and corrupt Fed Chairman, I thought it better to devote today’s article to detailing what is to come as a result of the Fed’s policies.
1) QE 1 Failed, so Will QE 2= The Fed Doesn’t Have a Clue
This is the most obvious, but most commentators seem to be missing it. We were all sold on QE 1 as being an emergency measure meant to keep the financial world afloat. Now we find out that the Fed considers this formerly emergency measure to be one of its normal tools (it’s not yet been a year since QE 1 ended and we’ve already got QE lite and QE 2).
In plain terms, the Fed’s decision to implement QE 2 proves not only that QE 1 FAILED but that the Fed doesn’t really have a clue on how to fix the financial system. Bernanke is literally making it up as he goes, which is truly horrifying if you consider the implications of this.
In light of this, you can bet that the Financial Crisis is nowhere near over. QE 1 failed. QE 2 will fails as well.
Moreover, you can bet that additional, GREATER systemic risks will be playing out in the next year. The problems that caused the 2008 disaster are still out there. The only difference between now and back then is that we’re running out of band-aids to cover them up.
2) Currency intervention, trade wars, and volatility will become the norm
Currencies are relative, meaning their values move relative to each other (you can’t have the Euro, Yen AND Dollar go to ZERO at the same time). In light of this, the Fed has officially challenged the major currencies’ central banks to a game of “devaluation chicken.” Expect to see most world central banks, especially the Bank of Japan, European Central Bank, and China’s central bank engage in similar practices of their own. All of these guys have a choice, devalue or kill exports. They’ve all proven to choose the former time and again.
Expect to see trade wars break out in a major way as this game progresses. We’ve already had a hint of this with China’s decision to cut rare earth elements exports. However, this is just the tip of the iceberg. Things are going to be getting very messy going forward. Expect to see capital controls, tariffs, and outright trade wars break out. As a result, prices of various goods will skyrocket (remember the rice scare in 2008?). Which brings me to the final point…
3) Inflation is coming sooner rather than later
The cost of just about everything is going to be going up… a LOT. In fact it already has. Most commodity prices are up double digits in the last year. This is just the beginning. Combine currency devaluation with trade wars and you’ve got a recipe for MASSIVE spikes in the price of goods.
In plain terms, the cost of living in the US will be going up sharply in the coming months. Oil is already at $86 a barrel. Food costs are rising. In fact, virtually everything but housing prices has risen in the last year. Forget future inflation, inflation is coming NOW. We’ve already seen the Dollar lost 15% of its value in the last six months.
What will this do to a middle class whose savings have already been eviscerated by two stock Crashes, no private job growth, and a 37% decline in the US Dollar in the last ten years?
Also, what will this do to corporate profits? Companies will either try to pass their increased costs off on consumers (good luck with that) OR will eat the costs themselves. Either way profit margins will shrink. I’m guessing the “stocks are cheap” crowd didn’t bother considering whether those future earnings projections were illusory.
The simplest forecast from this would be a portfolio emphasizing commodities particularly precious metals and agriculture: the former will be the largest beneficiary of ongoing currency debasement while the latter is one of the few areas in the investment world where an argument for “value” can be made.
Stocks will also benefit from all of this in the near-term. But in the long-term look for pronounced weakness, particularly as trade wars and increased costs bite into profit margins.
Also, on a final note, it’s a good time to stockpile on food and other items that are sensitive to price increases. I suggest having 3 months worth of supplies on hand at all times. The worst thing that can happen is everything turns out fine and you eat the food anyway.
Good Investing!
Graham Summers
What will this do to the middle class? Exactly what they've intended all along. Destroy it, utterly. The vision of the 'anointed' is and always has been, a two-class, not a three class global society. It appears that they are now making their final push to eliminating that pesky third class...
the infowarrior
I miss the bad old days of 6-7 months ago when some economists were trying to tell us how deflation would be a worse experience than inflation...
QE2 is not about stocks, it is about the inability for the fed gov to sell enough T bills to cover their obligations and entitlements. Bernanke is trying to stave off a popular revolt like Greece. China and the world may make that nightmare happen when they can no longer afford to buy T bills as the US dollar drops in value due to QE. In the meantime everyone on Main Street will get it in the aXX from high inflation.
The stock market is about to go into the mother-of-all, game-ending, grand fireworks finale, parabolic blow off-top rallies. Anyone who is concerned about inflation needs to be in the market. When the Fed says, “We’re ramping the stock market”, you’d better listen. Because it’s not just Americans going all-in; every nation invested to the teeth in Treasuries that offer zero returns, just got the green light to pile into the final Ponzi that will give them the profits that will soothe their desire to dump our debt back into the market. The next step is total dollar destruction and a massive summit to agree on a global currency. If that doesn’t happen, the trade wars will go mental, and then it’s World War III.
People klike Bernanke don’t mind putting everything down against overwhelming odds.
After all - they are all well heeled so we and our children will be the ones to suffer.
When Bernanke and Carlson came to Bush with their cock and bull story and their lies about needing to save the financial system he should have shot them both between their beady eyes.
The middle class in America is being strip mined by the world elites.
Glenn Beck has been on this for quite a while.
Actually, inflation will keep nominal prices from falling as much as they otherwise would have. This will allow homeowners to preserve the nominal equity in their properties and loans to appear as solvent. real estate just won't be worth as much compared to everything else.
We also MUST consider what happens with Iran and Israel. Israel will attack Iran sooner or later (Before 2012)...
What will happen now is that foreigners seeking to redeem existing T-Bills as they come to term will find that the only buyer is the Fed, who will simply print dollars to pay them off.
Of course, those dollars will buy less and less. In effect, the US is forcing its bond holders to take a huge haircut, while promoting exports and domestic production by devaluing its currency.
Nixon effectively shafted US debt holders when he took the US off the gold standard, so I don't know why anyone is surprised now.
Unlike other countries, the US _can_ produce just about anything it imports, whether commodities like oil or manufactured goods-- the difficuilty is the lag time between rising import prices and ramped up domestic production.
Master plan of the ‘progressives’
Devalue the dollar
Switch to a world currency
One world government
Total control
They use to call people crazy for that kind of talk. Now, it is so scripted.
Does the 100 billion a month just service the interest on the national debt, and is that a fairly accurate number?
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