Posted on 04/19/2011 9:49:38 PM PDT by blam
Why QE 3 Is Guaranteed (The Alternative Is Something Four Times Bigger Than 2008)
Graham Summers
Phoenix Capital Research
n 04/19/2011 20:42 -0400
AIG American International Group Bank of America Barclays Ben Bernanke Capital Markets Citibank Citigroup Countrywide Credit Suisse Deutsche Bank Fail Federal Reserve Goldman Sachs Greece Gross Domestic Product Japan Merrill Lynch Middle East Morgan Stanley Nomura notional value Portugal RBC Capital Markets RBS Too Big To Fail
The financial world is awash with a debate as to whether the Fed will engage in QE 3 in the future. To me this debate is pointless.
Indeed, the Fed HAS to engage in more QE 3 if it doesn’t want the entire market to collapse. Given the breakdown in Europe, the IMPLOSION in the Middle East, and the ongoing nuclear disaster in Japan, the removal of Fed liquidity would kick off a MASSIVE systemic Crisis.
Remember, we had a full-scale market breakdown when QE 1 ended and that was because of Greece: a country with a GDP of $329 billion. Removing liquidity from the markets when Japan, the fourth largest economy in the world (if you count Europe as one economy), the largest Oil exporting region in the world (the Middle East), and Spain and Portugal are all breaking down would lead to an absolute market DISASTER.
The Fed will not risk this. Besides it HAS to keep the liquidity going if it’s to continue supporting the TBTF banks in the US. Remember, 99% of what the Fed’s done in the last two years has been aimed at supporting the large, Too Big To Fail (TBTF) Wall Street banks. The reasons for this are:
1) The Fed is in fact CONTROLLED by these banks via the Primary Dealer network
2) Fed leaders are all front-men for Wall Street
In order to understand these, you need to know that the REAL power of the Fed lies in its primary dealer network, NOT stooges like Ben Bernanke.
If you’re unfamiliar with the Primary Dealers, these are the 18 banks at the top of the US private banking system. They’re in charge of handling US Treasury Debt auctions and as such they have unprecedented access to US debt both in terms of pricing and monetary control.
The Primary Dealers are:
1. Bank of America
2. Barclays Capital Inc.
3. BNP Paribas Securities Corp.
4. Cantor Fitzgerald & Co.
5. Citigroup Global Markets Inc.
6. Credit Suisse Securities (USA) LLC
7. Daiwa Securities America Inc.
8. Deutsche Bank Securities Inc.
9. Goldman, Sachs & Co.
10. HSBC Securities (USA) Inc.
11. J. P. Morgan Securities Inc.
12. Jefferies & Company Inc.
13. Mizuho Securities USA Inc.
14. Morgan Stanley & Co. Incorporated
15. Nomura Securities International Inc.
16. RBC Capital Markets
17. RBS Securities Inc.
18. UBS Securities LLC.
Of this group four banks in particular receive unprecedented favoritism of the US Federal Reserve. They are:
1. JP Morgan
2. Bank of America
3. Citibank
4. Goldman Sachs
You’ll note that these are the firms deemed “Too Big To Fail.” The Fed not only insured that they didn’t go under during 2008, but in fact allowed these firms to INCREASE their control of the US financial system.
Consider that JP Morgan took over Bear Stears. Bank of America took over CountryWide Financial and Merrill Lynch. Citibank and Bank of America were the only two banks to have their liabilities directly backed by the Fed ($280 billion for Citi and $180 billion for BofA).
Then there’s Goldman Sachs which was made whole from all AIG liabilities, received $13 billion in direct funding from the Fed, and was supported while ALL of its investment bank competitors either went under or were consumed by other entities, granting Goldman a virtual monopoly over the investment banking business (the firms that were merged with larger firms all laid off large portions of their employees and closed down whole segments of their business).
My point with all of this is that we NEED to ignore what the Fed says and instead focus on what it does. And in the last two years, the Fed has done everything it can to support these four firms. Indeed QE’s 1, 2, and the coming 3 are nothing but an attempt to funnel TRILLIONS into these firms (and the other primary dealers).
The reasons the Fed is engaging in QE rather than simply dishing out the funds are:
1. Political outrage would be EXTREME if the Fed just gave the money away
2. The Fed needs to support those firms with the largest derivative exposure
The reason that the 2008 debacle happened was very simple. The derivatives market, the largest, most leveraged market in the world.
Today, the notional value of the derivatives sitting on US banks’s balance sheets is in the ballpark of $234 TRILLION. That's 16 times US GDP and more than four times WORLD GDP.
Of this $234 trillion, 95% is controlled by just four banks. Those four banks and their derivatives exposure (in $ TRILLIONS) are charted below:
The above picture summates two things:
1) Who REALLY controls the US financial system
2) Why QE 3, 4, etc are guaranteed
The Fed HAS to continue pumping money into the system to support these firms’ gargantuan derivative exposure. Failing to do so would mean a disaster on the scale of four to five times that of 2008.
Remember 2008 was caused by the credit default swap market which was $50-60 trillion in size. The interest-rate derivate market is $200+ TRILLION in size.
So I am certain QE 3 will be coming. If it doesn’t come in June we’ll get hints of it until it’s finally announced. The Fed cannot and will not stop the money printing. Bernanke will be forced to resign long before he takes the paperweight off the print button.
So if you’re not preparing for mega-inflation already, you need to start doing so NOW. The Fed WILL continue to pump money into the system 24/7 and it’s going to result in the death of the US Dollar.
So why should we even care anymore... its all going to kill us in the end either way... a slow death or a fast one take your pick.
so what happens when the USA dollar virtually becomes a derivatives inself.........if derivatives were the root cause of 2008..
Bernake will kick in a QE3 that will time out after 2012 elections...The Left full knows it will blow up..
They just want to keep it going until they can build plausible deniability.
Back in early 2009 I did a post here by Peter Schiff where he warned that once the Federal Reserve starts buying US treasuries it wont be able to stop because if it tries to get out the bond market will crash. Some even here claimed the Federal Reserve would be able to make a graceful exit this time around.
Highlights from above:"The financial world is awash with a debate as to whether the Fed will engage in QE 3 in the future. To me this debate is pointless. Indeed, the Fed HAS to engage in more QE 3 if it doesn’t want the entire market to collapse. Given the breakdown in Europe, the IMPLOSION in the Middle East, and the ongoing nuclear disaster in Japan, the removal of Fed liquidity would kick off a MASSIVE systemic Crisis. Remember, we had a full-scale market breakdown when QE 1 ended and that was because of Greece: a country with a GDP of $329 billion. Removing liquidity from the markets when Japan, the fourth largest economy in the world (if you count Europe as one economy), the largest Oil exporting region in the world (the Middle East), and Spain and Portugal are all breaking down would lead to an absolute market DISASTER. ........The Fed HAS to continue pumping money into the system to support these firms’ gargantuan derivative exposure. Failing to do so would mean a disaster on the scale of four to five times that of 2008. Remember 2008 was caused by the credit default swap market which was $50-60 trillion in size. The interest-rate derivate market is $200+ TRILLION in size. So I am certain QE 3 will be coming. If it doesn’t come in June we’ll get hints of it until it’s finally announced. The Fed cannot and will not stop the money printing. Bernanke will be forced to resign long before he takes the paperweight off the print button. "
What’s the end game? I know these guys want to secure their power but they can’t totally destroy the middle class. They feed off the middle class. Let’s put it this way, billionaire’s son’s don’t grow up to be scientists who discover the cure to cancer.. and you have to know billionaire’s want to survive cancer.. so it seems logical they need at least a few of us shmoes around to do the heavy lifting. If the country becomes a nation of super wealthy and peasants ala the entire 3rd world, who will continue to expand the comfort zone of the super wealthy?
How wealthy can wealthy be if the currency is becoming worthless? Will the middle class continue to use dollars if single dollars lose their value?
“Will the middle class continue to use dollars if single dollars lose their value?”
Yes, they have no choice as long as USDs are the only thing the US Tsy will accept for payment of taxes. But it’s also possible that the public becomes inured to the effect once the dollar gets cheap enough and the attention span expires.
I personally agree with the premise that QE3 is unavoidable and a near-certainty, and I also believe that the Fed will come under enormous “inflation is getting out of hand” pressure and thus they will jawbone that they are throttling it back. That might have a somewhat negative short term effect on the stock market & gold/silver. Then. the Fed will say “but we’re ready to provide liquidity if we see a renewed need” and the market and PMs will be back to bullgasm from whatever lows are put in. Result: GS picks up a truckload of cheap(er) shares.
I just pray the black swan event comes before I am too old to fight for my children. This is primarily the fault of my parent’s generation, but I don’t believe my children’s generation should have to pay for it.
You should understand the premise outlined by “Brave New World”, that the super class only needs a small herd of useless breathers to take care of their needs while preserving the limited resources of planet Earth for themselves. This was written in the 1930’s by an elitist insider as a warning. This premise is being executed in our lifetime by constant promotion of zero population growth behavior ( abortion, birth control, gay lifestyle, marriage being postponed until late in life, green movement, euthanasia, etc.) even though it is detrimental to the future of most countries. If you follow the money behind the interlocking organizations that do this, you will often find someone like Gates, Buffett, or Soros writing the checks.
That being said, the current instability is not predictable and these guys could go down with everyone eise due to the nature of unintended consequences. It would not be the first time in history the playing field got leveled because of human greed and stupidity.
http://www.youtube.com/watch?v=Hzgzim5m7oU&feature=player_embedded
Pity the poor sheeple who do not even know they are blind
Derivatives are like an insurance policy on conditions that “only a fool” thinks might happen. So, the “smart” people sell derivative contracts to the “fools” and make “easy” money. Except its not so easy when the fools turn out to have been the smart ones all along. Then the people selling the contracts are on the hook for big $$ when they sold these contracts for mere pennies. This is documented pretty well in “The Big Short” by Michael Lewis.
If you think that oil prices are high now, just you wait until QE3 hits town.
You're thinking logically. Those in power may be thinking only about today. Tomorrow be damned. Their little circle is so insular, they don't think real world events will effect them. They're above it all. Masters of the Universe, to quote Tom Wolfe.
Oh, it’s easy.
Endowments. Scholarships. Grants. A few crumbs tossed out to attract the brightest and most ambitious of the children of the peasants. Attach strings to the gratuity, such as having to work in specific fields for specific times. Or, they can allow government to continue doing it all by providing education and then forgiving the loans in return for 10 years working within the government system.
They don’t necessarily want to kill off all of the producing class. They simply want to control those few that they need. What they need to destroy is the belief that anyone can make it on their own. Controlled capitalism is the goal. Bootstrap capitalism is the threat.
When the dollar becomes worthless, what will I exchange my PM, mining stocks and/or land for? The bancor?
The end game is that they know the train cannot be stopped from going off the tracks. Bernanke is just trying to string it out as long as possible. Everyone should be making plans to ride out the crash that is a couple of years down the road.
SILVER JUST HIT $45.00 AN OUNCE!!!!
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