USFed Chairman Bernanke and the Quantitative Easing programs are caught in a negative feedback loop, the instruments at risk being the USDollar and the USTreasury Bond. The former suffers from lost integrity and direct inflation effect. The latter suffers from direct intervention and market ruin. The next QE round is guaranteed by the failure of the previous program in an endless cycle to be recognized later this year. Leaders are confused why the recovery does not take root. It is because the entire system is insolvent, and the 0% rate assures total capital destruction, not to mention the big US banks are sacred, never to be liquidated, a primary condition for recovery. Liquidation is tantamount to abdication of power of the Purse and control of the Printing Pre$$, never to happen. The greatest hidden damage is psychological, where the USDollar and its erstwhile trusted USTreasury Bond are no longer viewed as the safe haven.
Capital destruction is the main byproduct of monetary inflation, a concept totally foreign to the inflation engineers at the USFed and its satellite central banks. They are agents of magnificent systemic devastation. In the wake of each QE round are discouraged creditors who turn away in disgust. The damage and inflation feeds upon itself in stages of intense wreckage. The motive, need, and desperation for QE3 is being formed here and now, to be announced by late summer probably. Prepare for QE to infinity, endless hyper-inflation, a process that cannot be stopped, as the urgent needs grows. Any attempt to halt the process results in almost immediate total annihilation. So continuation of QE rounds serves to manage the deterioration process and guide the financial structures gradually and orderly into oblivion.
VICIOUS CYCLE FEEDS UPON ITSELF
Simply stated, each QE round guarantees the next round, since damage is done, nothing is remedied, and the funding needs intensify. The list of damage factors is actually growing. The main factor is capital destruction from monetary inflation, as the price of capital is declared zero, and it flees from the USEconomy. Witness the industry long gone, hardly a critical mass remaining to support the system with legitimate income. Government regulation and taxes assure the flight continues in exodus. Almost half of the US Gross Domestic Product is derived from financial paper shuffling, whose negative value has been clearly displayed in the form of mortgage bond wreckage, profound bond fraud, home foreclosure processing, absent home equity withdrawals, bankruptcy processing, and piles of debt that burden households. US economists fail to comprehend the entire concept of capital, this from the supposed leading capitalist nation. The banking and political leaders struggle to produce jobs without a clue of what capital is, instead seeking to put cash in consumer hands. They should pursue business formation, with capital investment, encourage risk taking, provide broad tax incentives, and lead the consumer spending process with job creation and income production. But no. They prefer QE, the accelerator that pushes the nation over the cliff.
The bond market has been disrupted and corrupted, as the debt monetization has driven off foreign creditors, leaving the USFed isolated as buyer. The 0% rate slows the USEconomy tremendously by removing a proper return on honest savings. Return on capital is greatly disrupted all through the USEconomy. The heavily increased monetary supply maintains the emphasis on asset bubbles, as desperation sets in to find the next asset to produce a new bubble. The answer is USTreasury Bonds. A mildly violent reaction has come to the long-term USTBonds, while the short-term USTBills stay near 0% but with the aid of intense leverage power of Interest Rate Swaps. The long end reacts negatively to QE, while the short end is under QE control from the big bulging bid. The entire financial structure is crumbling under the surface. The USEconomy will continue to falter at minus 3% to minus 5% growth in a powerful ongoing recession, covered up by the fraudulent quarter to quarter calculations that permit deep deceptions from adjustments. Businesses cannot justify any expansion, given the household dependence upon home equity has vanished. Businesses have been put on notice, a certain shock, that the national health care plan will place greater burden on the business models. So the USGovt deficits will perpetuate in high volume, making the supply overwhelming in USTreasury securities and making the creditors retreat in a cringe of fear, shock, and disgust. The more the USFed buys its own paper feces with USTBond labels, the more the securities lose their security, the more the foreign creditors refuse to participate in the next auction, the more the integrity of the US$ and USTBond is shredded and lost. The United States has become a Weimar nation with gradual global recognition. Instead of a recovery, it slides into the Third World. Thus the need for the USFed to cover the next USTreasury auction in full, or almost in full. It is deeply committed to monetizing the entire USGovt debt. Call it Weimar, Third World, Banana Republic, whatever!!
An encouragement has come from the QE movement to the entire world to revolt against the USDollar, to seek an alternative, to establish bilateral trade mechanisms, and to bypass the current system that enables privilege, fraud, market meddling, which permits an unwarranted standard of living to the US and its people. The bilateral accords between Russia and China, between China and Brazil, between Germany and Russia, and between India and Iran are all telltale signs of revolt. They wish not to participate in the US$-based system. The consequence is a new trend to diversify out of the USTreasurys with existing reserves, and to avoid accumulation in the future within banking systems for satisfaction of trade settlement in global commerce. The foundation on a global level is crumbling for the USDollar. As the bilateral links build, eventually enough fabric will be woven to support a new global currency, or a new global system. Often mentioned in certain circles is a sophisticated barter system, built upon high level credits in exchange, with a vast trickle down flow of funds, within a balanced system. Nations addicted to deficits will be left out in the cold. The most deficit ridden is the United States, dragged down by endless war costs. Their location has another name, the Third World.
Furthermore, the inflation effect has crossed from the monetary side to the price systems, hitting the entire cost structure in a profound way. The moron bankers strive to cut off the process from handing higher wages to the workers, so that they can afford a higher cost of living. The leaders thus strive to bankrupt the Middle Class, hardly a pursuit in commitment of economic recovery. The cost squeeze is deeply felt by both businesses and households, businesses that cannot hold their workers as profits erode badly, and households that cannot maintain their spending patterns as incomes are devoted increasingly to food, fuel, clothing, insurance, and everything else. Tax revenues from wages and corporate profits and capital gains are descending into the gutter, not available to cover the USGovt deficits. Witness the death of the USEconomy in hyper-drive, pushed by the USFed Quantitative Easing. The impact on the worsening recession at the macro level, and the shrinking of both businesses and households, translates to larger deficits. Notice that in early 2009 when QE1 was first announced, and later when QE-Lite was announced, the USGovt minions forecasted reduced budget deficits for 2010 and 2011. The USGovt posted its largest monthly deficit in history in February, a $223 billion shortfall. Most decisions center on budget cuts, for education, welfare, projects, and more, while war spending is largely intact, priorities revealed. They have no clue how to build tax revenues. The Jackass forecast was for greater deficits due to the ravages of capital destruction and cost inflation, which both arrived with billboard attachments. The dependence therefore upon the USFed for its Printing Pre$$ buyer of USTreasury Bonds will increase with each QE round, assuring the next round.
The harsh savage negative reaction to QE2 kicked into high gear the movement of funds out of the USTreasury complex and into commodities generally. The shift to financial commodities in Gold & Silver has been even greater than for crude oil, the traditional hedge. Despite not being the leading non-financial commodity in price increase, the crude oil impact is enormous, in food production, in transportation costs, and especially in industrial feedstock costs. The result is an energy tax, compounded by a systemic cost that acts like a gigantic tax. The USFed QE program thus imposed a significant tax increase on the entire USEconomy. The entire population is aware, except for the USFed, the Wall Street master, and banking elite. Actually, they are aware, but they cannot speak about the scourge they unleashed since they would invite criticism and turn the blame onto themselves for destroying the United States financially, economically, and systemically. The moral fiber is long gone among leaders, as the US nation is being recognized as a fraud king playpen. The end result is that in the cycle, movement from USTreasurys to the USEconomy is not happening during this death spiral, as it normally does. Instead, the next bubble is in the entire commodity arena. Beware that such a trend is highly destructive, since it erodes the profit margins and disposable income, thus causing deep recession if not systemic collapse. The energy and material tax renders huge harm, pushing the system into a deeper recession. It never ended.