Dr. Ron Paul's views on QE3

Its the end of a long week.. The good guys have taken a beating for sure...

The Dow is up, Up, UP!!.. The bottom-feeders are happy, Happy, HAPPY!!..

We explained yesterday how destructive QE3 will end up being for everyone, not only in the US but global ramifications and the cause of much civil unrest ultimately.. This Bernanke 'victory' is going to be short-lived.. a couple months at best..

So we thought we'd provide a different prospective... well, in terms of point of view and potentially being different from us, umm.. No.  Its not different at all.. Just 'different' in that its someone well known and respected as a consistent anti-Fed crusader-- former Republican Presidential candidate and current Congressman from Texas, Ron Paul.

Bloomberg interviewed Dr. Paul yesterday to get his response to QE3...

We thought his answers were informative and on the mark so we're reposting.

Ron Paul's responses will be in blue font:

Paul’s reaction to more Federal Reserve stimulus:

    “It should not surprise anybody, but it is still astounding. To me, it is so astounding that it does not collapse the markets. [Bernanke] said, ‘We are in very big trouble. We are going to do something unprecedented and we believe it will not hurt the dollar.’  And yet the stocks, they say ‘we love this stuff.’ But the dollar didn’t do so well today and the real value of the dollar is measured against gold, and gold skyrocketed from its very low to its highest. 

It means we are weakening the dollar. We are trying to liquidate our debt through inflation. The consequence of what the Fed is doing is a lot more than just CPI. It has to do with malinvestment and people doing the wrong things at the wrong time. Believe me, there is plenty of that. The one thing that Bernanke has not achieved and it frustrates him, I can tell—is he gets no economic growth. He doesn’t do anything with the unemployment numbers.

I think the country should have panicked over what the Fed is saying that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time.”

On potential unintended consequences:

    “The biggest unintended consequence is what we need is a restoration of confidence. If the Fed is expressing a lack of confidence and they do not know what to do, it does not do anything to restore confidence. People might restrain from doing anything. ‘Interest rates are low. I do not have to buy my house this year. I will wait until next year. It might be a little easier. Prices might come down.’ So people are restrained and it is the opposite of when you expect that housing prices are going up, and you are afraid interest rates are going up.

That is why the market rate of interest is so crucial. The rate of interest should give the businessman, the entrepreneurs, the investors and the savers information. But there is no market to interest rates. That is why there is such gross distortion and why we do not have a market economy. We have a rigged economy through central economic planning by central banking. The system is failing, it was doomed to fail and we have to wake up to that fact.”

On whether the Federal Reserve needs discipline:

    “Short of getting rid of the Fed, which is not going to come and I wouldn’t do that overnight anyway, I would say that Congress has the authority to say, do not buy debt. Do not buy any debt. The Congress can yell and scream and pander to the people. They can say the deficits are terrible and terrible. But nobody wants to cut overseas spending or food stamps for the poor. They say, ‘we cannot do it without the Fed. The Fed has to buy this debt.’

That is a moral hazard for the politician. If the Fed couldn’t buy the debt, and interest rates would rise all of the sudden the burden would be on the Congress to get their house in order to restore confidence. Even that would panic a lot of people because live within your means? We do not like that. We like this idea that we can give people anything they want for free, so we can get reelected. Well, all of this is coming to an end.”

On whether Bernanke should be pulling back liquidity and raising interest rates right now instead:

    “Liquidity should be determined by the market. I don’t think he should raise rates. He should just get out of rigging rates. The system is so biased. It helps the bankers who get free money and then they buy government debt. What about the people who are frightened, they do not like the stock market and they are frugal and want to take care of themselves?

What do they get—1% on a CD? That is unfair. It’s bad economics. You want to let the market determine interest rates and let it sort it out. People get so nervous, because we have lived so long with a Keynesian economic model of fixing interest rates and intervening in the market.”
__________________________
Try to have a good weekend~

QE3 Finally Enacted-- What it means?

 

Such a depressing topic of which we write, we're going to choose to break up the long read with cheerful pictures of flowers (all taken by yours truly)...

It will make the effects of QE3 easier to digest we hope...

After 20 months of endless cock-teases, Bernanke has finally committed to QE3; committed like a poker player pushing all his/her chips into the center of the table for one make-it or break-it bet..

All-In!

Here's how Yahoo Financial describes it:

"In an unprecedented and controversial move, the Federal Reserve today announced the initiation of an open-ended round of Quantitative Easing (QE3) and extended the period for which it will keep rates between 0 and 1/4% to mid-2015... The Fed announced it will be purchasing $40 billion in MBS per month"

OK.. What does that all mean?

*  MBS means 'Mortgage Backed Securities'.  The Fed will spend $40b a month to purchase the toxic mortgages and other 'junk' worth nothing that are being held by banks, mortgage institutions, etc so as to dramatically improve their balance sheets.

*  Unlike QE1 which cost taxpayers $1.7 Trillion and QE2 which cost about half a Trillion and was committed to in a finite period of time,  QE3 is open-ended.  It can go on for months... years... decades..  US Govt does not have authority to supersede so its all left to the discretion of the Fed.

* $40B x 12 months = $480B per year QE3 is enacted.

*  Keeping interest rates at near Zero does absolutely nothing to impact your lives in a positive way.  Its not about creating new jobs, offering you cheap car/home rates or ability to make refinancing easier.   This is the amount that banks can borrow.

The cheaper the rate, the more $$ they can borrow then speculate into the market or lend to other banks.  Why would Bank America for instance risk lending to you when they can lend to another big bank that is "To Big To Fail" meaning the loan has a 100% guarantee of eventual repayment?

See how it all works, yet?

*  Here's what the Fed said today:  "If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability..."

 And here's how Yahoo! describes it:  "Employment is weak and is expected to be despite the Fed's best efforts. In response, the Fed is opening the spigots even further and vowing to continue to do so until this failed strategy starts working. There's a certain willful spunkiness to the plan, but in terms of economics it's little short of bizarre."

*  It's a bullish move in the sense that pouring more money into the system inflates values. Stocks, gold, oil... basically everything except the dollar "should" go up in value.   That means corn, wheat, soybeans, cotton, coffee... everything that's a tradeable commodity.

That means you and I... WE will be paying more for Everything and that does not even take into consideration the eventual repayment of these debts via higher taxes and dramatic cutbacks to social services and 'entitlements' later on.

Remember:  All the rebellions in North Africa and specifically Egypt wasn't about hatred for dictators-- they tolerated them for decades.  QE2 caused a dramatic spike in the prices of food and when most people in that area are making the equivalent of $2 US dollars/day and one can not afford to purchase rice or grain,  they're not going to quietly starve...

QE3 is going to stir massive unrest by mid 2013 in many under-developed populations.. Perhaps more embassies attacked.. And maybe even beginnings of outward dissent in more economically disadvantaged parts of the US... Food stamp cards can only hide so much...

* President Obama can now breathe easy-- he got re-elected.

Most people know nothing on finance or economics.  They judge the health of the economy on two factors.. how they're doing personally and how the market is doing.   Even if people are struggling for years, they need 'hope' as empty as it is.. Seeing a spiking Dow (even if they don't understand the nuts & bolts 'why' gives them that hope)

They desperately want it to get better... They see the Dow +100.. +200..  Ta Da!  It must be so.. Heavens Praised!!  And who benefits-- the incumbent promising everything will get better or the challenger who promises slash n' burn?

* The one "positive" we see from this move is that no one will have any expectations for October.. or November..  After 20months of cock-teasing, Ben the Bastard finally emptied his 'load' upon the begging, open-mouthed Investors..

The market has spiked over 200pts today..  Yay to the Evildoers..  But ultimately the market can not rise forever and the Big Bazooka has been shot..  When Investors end up seeing little bang for the buck compared to QE1 & 2, what more can the impotent Bernanke do to stir excitement... Really?

In summary, 2012 should finish quite smoothly.. barely a ripple.

2013 is now going to become a quite brutal year in ways we don't even have the time to begin to explain