25 Sep

Buying Re-election With QE Infinity [Reader Post]

                                       

The preponderance of misrepresentations and fiction floated by most of the MSM in these frenetic final weeks of the Presidential election, may in the long term cause much harm to an already overburdened Nation. Making decisions with bad information never works out well.

Near the top of our influence food chain we have Ben Bernanke fuelling inflation of risky assets through a continuation of the quantitative easing strategy. The markets have siphoned money from “savings” accounts where interest rates are at near zero. How great is that? The stock markets are booming, while anyone holding interest-bearing assets continues to get decimated.

Feckless ignorance and economic illiteracy, praises this bull-run as ‘success’ and a sign of a stable economy returning to health, rather than address what it really is, . . . artificial, and transient gains. The markets have become a bubble, and when this bubble bursts, there will be a dearth of ‘shorts,’ to provide support with a bottom, as occurred during the last crash. Real ‘shorts’ were driven out by regulation and fear of helicopter Ben.

Bernanke admonished Congress for not reaching agreement on spending and taxes, in an effort to cover his backside. He should instead drop in on the President, interrupt a dinner with a star-of-the-hour, or interject himself into a golf game, and admonish him for the same thing, and he should point to the fiscal cliff much more forcefully. But we know this will not transpire, and given the timing of his Infinite Quantitative Easing, Ben won’t even bother to educate Obama. The President’s lack of knowledge is to Bernanke’s advantage, and to the advantage of his friends in the inner sanctums of the most senior banking establishments. Bernanke ordering Obama to back-off his anti-business vitriol and his destructive actions, would have more positive impact on jobs than QE3 will ever have.

So let’s look for some clarity at why with all the cash apparently floating in the streets, the banks are not putting all these free dollars to work toward the rebuilding of the country, and there is no reduction in the numbers of unemployed Americans. Is there something not quite right which we are not fully aware of?

The following is a rare but useful piece of critical information most of us can appreciate from the WSJ, “In 2010, the number of Federal Register pages devoted to proposed new rules broke its previous all-time record for the second consecutive year. It’s up by 25% compared to 2008. These regulations alone will impose large costs and create heightened uncertainty for business and especially small business.” Yah? So, who cares? If you are unemployed, or if you are a budding entrepreneur, it is not over-reaching to understand that this is not helpful to your cause. Additional administrative burden on small and medium sized businesses will not improve their balance sheets. It will not create new jobs.

The galloping expansion of government bureaucracy is an insidious characteristic of its political leadership which the Nation must reverse. I recently outlined how the current Administration ‘used’ the auto industry and abused bankruptcy laws to enrich its friends, and further its progressive agenda, while the MSM ignored or covered up the misdeeds. We once again discern the sound of crickets from the MSM as Ben Bernanke, just before the Presidential election, announces QE3, which is in reality QE Infinity since he is embarking on an open-ended policy of feeding banks.

The Fed will expand its holdings of long-term securities by buying up an additional $40 billion a month of mortgage-backed securities for an indefinite period. Who can fathom the depth of the toxic asset well? Not the banks. Not Ben. Not the taxpayers. Infinity is a long time, so Bernanke is jumping into the well, with no flashlight, and with no clue as to its depth. What could go wrong? Since this wasn’t enough, Bernanke also announced an extension of “Operation Twist” in which The Fed sells its short-term bonds for longer-term bonds in the hope that this might drive down mortgage rates. Oh good, more artificial manipulation of some critical economic elements in the country’s foundation.

QE1 and QE2 have worked so well. Didn’t they? Well sure, the banks receive ‘free’ money, and the stock markets, which really have little to do with the health of the economy, keep rising. The Administration and the MSM have something to brag about. Something which will provide the appearance of economic encouragement. The repressed truth will be disheartening. The unemployed remain so, and the trillions which corporations are sitting on, remain ‘out of the game’ and uninvested. Why? Explicit uncertainty is one reason.

The following is an insight on one of the numerous rationales for this pronounced uncertainty. Dallas Fed President Richard Fisher addressing the Harvard Club of New York actually said these daunting and worrisome words, “We are blessed at the Fed with sophisticated econometric models and superb analysts. We can easily conjure up plausible theories as to what we will do when it comes to our next tack or eventually reversing course. The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank—not, at least, the Federal Reserve—has ever been on this cruise before.”

Such insight required some audacity from Fisher. Admitting that Bernanke and The Fed have no idea what to do is more than just a bold move. It sends shudders through the spines of every taxpayer in the Nation. These tremors will turn into back-breakers when The Fed decides sometime in the future to dispose of its accumulations.

Bernanke has no confidence in America, in its companies, in its ingenuity, in its creativity, or in its entrepreneurialism. Nevertheless, he evidently must keep the White House resident in the house. No one will ever know how many dollars Ben creates in his infinite wisdom to accomplish his objective. Launching his ‘Hail Mary’ just before the election is nothing more than political ingress by a body which should remain out of the game and on the sidelines. Furthermore, The Fed should not attempt to ‘manipulate’ the economy as it has been doing. That has never been The Fed’s intended purpose.

The sound of crickets from the MSM on the realities of The Fed and its actions is impairing voter determination.

Crossposted from The Pacific Gate Post

About James Raider

A constituent of the vast baby boomer generation with a career which has been fortunate to know the ponderous corporate worlds, as well as the intimately pressurized, and invigorating entrepreneurial domains of high tech and venture capital, I have harvested my share of mistakes meandering through corridors of enterprise from Silicon Valley, to London and endless, colourful, sometimes praetorian points in between. The voyage has provided an abundance of fodder for a pen yielding to an inquisitive keyboard, a foraging mind, and a passionate spirit. Whether political or business or social or economic or personal, is it not all political? It is a privilege to write, and an even greater privilege to be read by anyone, and sometimes with the wind at my back the writing may occasionally be legible. I do not write to invite scorn, nor to invite respect, but if I get really lucky the writing can stimulate thinking. I also write for the very selfish purpose of animating my own processes, and engaging the best of what life offers. Above all, whether biting fire or swatting shadows, I am grateful to be gifted the freedom to write and publish whatever flows down to the keyboard. To all those who enabled this freedom, and to all those standing guard to preserve it, I am indebted.
This entry was posted in Barack Obama, Economy, Media, MSM Bias, Obamanomics, Politics. Bookmark the permalink. Tuesday, September 25th, 2012 at 12:00 pm
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16 Responses to Buying Re-election With QE Infinity [Reader Post]

  1. Nan G says: 1

    Obama hates the ”rich.”
    Make that, he hates anyone who had been frugal and saved for a rainy day, even middle class folks.
    This decimation of savings hits those few baby boomers (what is it? 10% of boomers even have savings?)
    Doesn’t matter, Obama can make their savings evaporate by destroying the value of their dollars in the banks.

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  2. Skookum says: 2

    Nan, if you are independent in spirit or pocketbook, you are necessarily independent of government. This represents a potential terrorist to Obama. He wants you dependent on his government, thus he has control over you; otherwise he must depend on Obama Care and it is in a precarious situation.

    It is difficult to break an economic system as strong as America’s, but you can bet the Soros understudies are plotting daily to bring America to its knees. Ruin the economy and you begin to have control; control evolves into power, those are the opiates of the totalitarian types, once you have control and power you own the wealth.

    Is Obama that intelligent? Not likely, but Soros, Jarrett, and Ayers are, and they would be happy to take control of the US and its wealth.

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  3. MataHarley says: 3

    James Raider, I suspect the deafening sound of silence from the MSM on the Fed policies has more to do with economic ignorance and the inability to see long term effects than effecting a single political election’s outcome.

    However most of the economic blogs have had plenty to say about it. Most voters, however, don’t hang on those sites.

    As for we mere mortal citizens… we’re stuck on the roller coaster with no way off. We can only attempt to sense the up and down hills a’coming, and figure out a way to stay strapped in. Not to mention enjoy what’s left of the US’s good ol’ days. With a decades long quest to devalue the dollar in order to make our unsustainable entitlements debt falsely sustainable, it make be a freight train that can no longer be stopped.

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  4. Poppa_T says: 4

    I have a question…are these “mortgage backed securities” actual mortgages? If they are then what the FED is really doing is buying up 40 billion dollars worth of private real-estate at rock bottom prices each month. I don’t know if there is a difference between “mortgage backed securities” and the bundled sub-prime mortgages that were sold as asset-backed securities to investors (large banks) and precipitated the mortgage meltdown of 2008. But if these are actual mortgages then this is the greatest land grab since the Oklahoma land rush of 1889.

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  5. MataHarley says: 5

    Not exactly, Poppa T. MBSs are not a pile of promissory notes to properties, but organized “pools” of loan assets. They are rather like a certificate of share(s) issued to participatns, that are claims to the cash flow those mortgages generate… or a prorated share of the combined principal and interest payments made on that specific “pool” of loan assets. You aren’t selling the notes or ownership/foreclosures/real estate sales would be impossible since it would be virtually impossible to trace who actually held the note.

    Then again, weird things happen via packing these things up, like last year when they had the robo-signing class action lawsuits against the five major banks because they signed foreclosure documents without actually tracing the promissory notes.

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  6. Poppa_T says: 6

    @MataHarley: I hope you are right Mata, I have seen articles that say the opposite, E.g. I don’t know enough about this issue to competently separate the wheat from the chaff but I do know things arn’t getten any better.

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  7. James Raider says: 7

    @Nan G: #1,

    This decimation of savings hits those few baby boomers (what is it? 10% of boomers even have savings?)

    That I find myself in the BB crowd has no doubt had impact on my perception of Bernanke, Greenspan, & Co. over the past decade + years. It also doesn’t help that many acquaintances are also in the BB basket which has been mercilessly attacked by the free money idiots. I use to have acquaintances who ran a couple of senior banks, 30 odd years ago, and while I didn’t like some of their moves, I still had respect for them. Today I hold zero respect for the clowns who have floated to the top of the current banking heap. I don’t recognize the state and condition of the Boards, their willful stupidity and most of all their lack of long term vision. For too long it has been a ’30 day’ window on the world, and its impact on bonuses. But I’m just whining about the giants, . . . Regional banks are different story altogether. In fact, it is IMHO regional banks who should be getting ALL of the government largesse of free cash directly, not the big ones. Then the cash might see daylight.

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  8. James Raider says: 8

    @Skookum: #2,

    “Is Obama that intelligent? Not likely, but Soros, Jarrett, and Ayers are, and they would be happy to take control of the US and its wealth.”

    My sense is that you are very probably on target with this, with my only minor qualification being that I feel Soros’ motivation is somewhat different from Jarrett’s and Ayers’ in that he is in the cat-bird-seat sitting on billions dreaming of one world government and one world currency. He sees this Administration as doffers. The other two want to turn America into a socialist enclave which will long term provide them with broad influence, each with very different motives. These two egos would probably kill one another in a dark alley if given the chance, but Jarrett hold the keys – she’s got Obama’s wife in hand.

    Jarrett is no visionary but is self-serving on a very parochial level. She long ago orchestrated her plan. I think she’s the energy which created the whole thing out of very thin air – the Obama Presidency – well before Obama ever thought of being President. She’s no dummy, she first used his wife then built the papier-mâché teleprompter reading pawn, even arranged for his books to be written, grouped a talented bunch of PR guys, etc. Well done. I don’t even think she likes Obama. Probably resents him. That fact is inevitable. The “éminence grise” always resents the head on the throne.

    Ayers is just a radical who’s happy to be alive, and lucky anyone still listens to his drivel. He should never have seen light of day outside a jail cell.

    I doubt America has ever experienced such a confluence of events to have culminated in such a vacuous individual sitting in the Oval Office. How, after these almost 4 years, there is still doubt, remains beyond comprehension. But then, it’s just my opinion.

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  9. MataHarley says: 9

    @Poppa_T I scanned the link you provided. A bit on the extreme side in some ways. Not all MBSs are “toxic”. Even Fannie and Freddie pool assets and sell MBS certificates.

    The whole thing is a convoluted shuffle, and there’s no single way any of the assets go. But if you want to read a bit more on the maze that is the secondary mortgage and investment market, here’s a few links that will have your eyes glazed in no time. Suggest reading when you’re feeling insomniac. LOL

    Older, but a good basic primer on the secondary mortgage market.

    Investopedia also has some basic info called “Behind the Scenes of your Mortgage.

    This is an interesting article by a former loan auditor, who attempts to follow the bouncing ball that is your promissory note thru the process. Notice that by the time it gets to one of the MBS variant stages, the investors in the MBS aren’t the note owners because that’s held in trust by a single entity.

    And if you really want to get deep into the “who’s got the note?” question, you can learn about MERS… a mortgage electronic registry system created by the mortgage banking industry (including the GSEs) in the mid 90s (1995, to be exact). Wiki has a MERS page, and like everything Wiki, there’s always caveats. But it will give you a good base on it’s background and inception.

    If you want something a tad less hysterical than the link you read, tempered a bit more in the complex realities, you can read this 2010 article about tracing ownership, and the effect of the MBSs. This was prior to the huge robo-signing lawsuit that was decided last year, but is a good explanation for the reasons for the lead up to the suit, which revolved around a willy-nilly improper foreclosure process and the lack of detailed title/note tracing.

    If you read enough, you’ll scare yourself right out of buying a home using a loan. But it shouldn’t be. Fact is, most homeowners never have a problem purchasing, and transferring their homes in a traditional sale. It’s only when properties get distressed and foreclosure looms that the plot thickens with stuff. And over the past housing crash years, title officers and insurers are tearing their hair out.

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  10. Poppa_T says: 10

    @MataHarley: Thank you for taking the time to post so much info, I will study it all.

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  11. @Poppa_T: #4,

    Looks like Mata has done, as usual, an excellent job of treating your question effectively.

    For my 2¢ worth, as I note in the above article, no one will audit The Fed, so you will never know what Ben & Co. are really doing. You’ll only know what they ‘say’ they might do or have done. There is no public oversight.

    One reason banks, etc. don’t know the true nature of toxic assets, is that many of these wondrous mutants were broken up into little pieces and distributed, to spread the risk and potential damage. When your best friend, Bernanke, manages your access to free money, do you really need to care what constitutes those toxins and how much they amount to? That is why the heads of the largest financial institutions, and banks can sit in front of Congress and arrogantly hold forth without much care about their ‘back offices’ which should but don’t know the size of the monsters lurking in the scarier corners of their books. Without helicopter Ben, these guys would be sweating.

    A concern about The Fed’s action is what will occur when it disposes of whatever it has acquired, toxic assets/derivatives and Treasury Securities. Meanwhile it can’t allow interest rates to rise, which would negatively impact the value of its portfolio.

    . . . One thing The Fed does not want is external interference. With this President, it is safe on that front.

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  12. MataHarley says: 12

    You’re welcome, Poppa T.

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  13. Ditto says: 13

    This brings a related topic to mind. and that is the question where does the regular person put their money? With Bernanke in charge, stuffing it in your mattress is no good. Bank savings accounts are little better. The stock market is not much different from going to a casino. Real estate would be ludrative if you earn enough to pay the mortgage and can get the loan. But for the small-time saver there doesn’t seem to be much of a option beyond perhaps a high yield savings account.

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  14. Nan G says: 14

    @Ditto:
    Ditto, If you’re younger you can tolerate more risk than us oldsters.
    And IF you trust that the USofA will still be a going concern in the future, bet on it by investing in stocks.
    IF you are more concerned about our gov’t invest more in other world markets, both developed and developing.
    Gold is always a good bet.
    Silver and even rare earths are, too.
    Commodities as well as infrastructure for commodities make sense.
    Utilities have been good bets.
    Be cautious about municipal and state bonds as some states and cities are in real trouble and might renig.

    Most important: diversity!
    If one part of your holdings suffer, other parts might be going up.

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  15. Ditto says: 15

    @Nan G:

    Gold is always a good bet.
    Silver and even rare earths are, too.

    I’m going to disagree with you here on gold and silver. Gold was a good investment 10 years ago, Silver roughly 6 years ago. neither is currently a growth investment, but only a protective investment in case of another financial crash. Silver is on the rise mainly because China is buying it up heavily, not because of production demands (the main industrial use of silver was in photography/film production, but cheap printing and digital reproduction is making it a less needed metal).

    Platinum (heavily used in the manufacturing and a key element in catalytic converters,) is one to consider buying currently, but it is also rising sharply due to strikes at the mines creating limited supply. Rare earths may be a good investment if you can figure out where in that market to invest.

    Commodities: IMO avoid the oil market until after or closer to the election. Other commodities, well it depends on the commodity. The commodity market can be very risky.

    Utilities: The election could have a huge effect on these investments and make them a gamble. If Obama is re-elected, Coal and US oil production will continue to be suppressed. If Romney wins, than the alternative energy investments will not get possible Obama crony payback… (Ahem, “taxpayer investments”) needed for their stocks look good.

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  16. @Ditto: #15,

    You have evidently given much thought to the investment quandary, however, your list of possibilities still plays with risks which will be affected by the whims of voters, or decisions from the likes of Bernanke, or economic policies decided on by foreign governments, so perhaps you might want to keep it simple and ask yourself what will be the basic needs of the average human being going forwardregardless who gets elected, regardless what helicopter Ben does or doesn’t do, regardless whether we are heading for Boom time and dancing in the streets, or heading for financial calamity.

    You can’t predict the future, but common sense contributes a few clues:
    What will you, as well each and every human being around you, always need, not want, but need? And go from there.

    ReplyReply

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