USFed: Infinite QE Forever At Zero Bound

July 30, 2019

The widespread profound and recognized global recession, complete with numerous icon corporate failures, will lead the US Federal Reserve to return to unlimited Quantitative Easing with a Zero Percent chaser. The Jackass calls it a return to Infinite QE Forever at the Zero Bound. Not only is the double step of return to QE with a sequence of interest rate cuts urgently necessary, but the financial markets are demanding it. In fact, they are holding the USFed hostage, as the venerable august body is backed into a policy corner. This time seems different. For ten years, the USFed has relied upon coordinated policy with the Euro Central Bank, having used all the most extreme measures, yet has a systemic failure on its hands. Witness extreme monetary policy failure. The systemic failure is both financial and economic. The bond purchase program wrecked the bond market by driving away legitimate investors, while the ultra-low interest rates wrecked the economy by distorting asset allocation. The central bank is backed into a corner like never before. Their tightening procedure over the last three years is a monumental dismal failure. They cannot return to normalcy. In fact, quite the opposite. They must resort to permanent hyper monetary inflation. They must return to Infinite QE Forever. They must also move the interest rate toward the zero bound. Who knows? If they charge a small fee with negative bond yields in dozens of nations for sovereign bonds, maybe these master idiots at the controls will pay us to borrow money. They urgently need the participants within the economy to get busy, to conduct business, and to pay taxes.

The firm Jackass belief is that for every dollar (100 cents) offered in new debt, the economy gains around 20 to 30 cents of new business activity. The primary effect of the last several years has been to avert a USGovt debt default and to pump a grand stock market rally despite the worst recession since the Great Depression. Of course, the dutiful government stat-rats lie though their keyboards (teeth) about the GDP growth, about the price inflation, and about the jobless rate. For about 10 consecutive years, the GDP has been running at around minus 3% to minus 5% in a vicious ongoing recession. They lie on price inflation by about 5% at least on a constant basis. The bond market crisis has begun, and it will develop into full blossom. The USFed must act, to add bond purchases and to cut interest rates. But these policies are exactly what caused the problems. They have two choices: to permit the system to collapse, or to buy a couple more years with more continued levitation. The Wiley Coyote moment is here, and offering some hydrogen balloons to the mangey animal is the only option. This bond market crisis is upon us. It is what the Jackass has called the Systemic Lehman Crisis, certain to be at least three times worse than in 2008. All the subprime bond errors have been repeated on a global scale. The USTreasury Bond is the new global subprime bond. It is being rejected.

Debt saturation is the story of this era. The QE over the last seven years has ruined enormous capital, while the low rates have misallocated that capital. The USFed is responsible for destroying both the financial structure and economic structure for the nation, as well as for the Western world. Now they are desperately asked, cajoled, and urged to provide the framework for recovery. They have produced a dead end. The irony is thick, while the stupidity is vast.

FALSE ADULATION, FAUILTY THEORY

The public and investment community have shown incredible ignorance and absent foresight. Harken back to 2003 and 2004, when the exalted shaman Sir Alan Greenspasm declared the end of financial crises, due to the wonders of off-loaded risk with derivative contracts. Just four years later the subprime mortgage crisis emerged, to ruin his legacy and lay waste to his empty claims. Move to today. The Modern Monetary Theory claims to have removed the risk of debt default and to assure the means through hyper monetary inflation, to produce prosperity without crisis. WRONG AGAIN!! We as a nation and as a Western people have learned nothing from the Lehman bust (more like a Goldman Sachs murder), learned nothing from the monetary and credit excesses, learned nothing from the stock boom & bust cycles, and still do not perceive the urgent need to rebuild the US industrial base. Instead we call upon more easy money, new heretical dogma, and a continuation of financial pump prime episodes. This will end badly. Furthermore, the Gold price has sniffed out the radical desperate changes, which will not result in any solution whatsoever/

INFINITE Q.E. FOREVER AT ZERO BOUND

It is next. It is unavoidable. It is urgently demanded. It is no solution, but it fits well within the sick twisted Rubin Doctrine. He espoused the principle to buy another few days even if assuring ruin next week. Rubin corrupted everything he touched, and was the architect of the Clinton Admin falsified economic statistic movement. The USFed is backed into a corner. They must expand the bond purchase program, and must reduce the interest rates. Even JPMorgan analysts have echoed this intractable situation, which seems more like blackmail put against the USFed than a policy shift.

The US Federal Reserve hints at the rapid return to ZIRP, working toward the call of Infinite QE Forever. The reversal of monetary policy, away from tightening, and back to full bore easing with zero rates, will combine with expanded bond purchases. The new monetary policy will mark a major turning point for the USDollar, the USTreasury Bond, and the perceptoins of the USGovt debt structure. The turning point will be extremely negative, with horrible global press toward the King Dollar, and a ruinous reputation for USGovt debt. The Gold price will rejoice, rise, then soar.

Zero Interest Rate Policy will return, since the movement toward normalcy has failed. As the USFed climbs into the Infinite QE Forever policy chamber, the entire global financial system will abruptly change gears, and the Gold price will react favorably. The hyper monetary inflation framework is unavoidable for many reasons. The QE Forever feature of monetary policy is fixed and understood. Next comes the Infinite QE part, as lower interest rates will be accompanied by monetization of major corporations, for national security reasons.

  1. The entire Quantitative Easing (QE) put into action by the USFed in 2012 was designed to stimulate, but the only benefit came from avoiding a USTreasury Bond default. The bailed out the Wall Street banks. The funds were preventing from entering the business sectors, as Main Street has languished and fallen into an even worse recession. In February, Chairman Powell clearly indicated that QE bond purchases will become a permanent fixture at the USFed. Now the only option left is hyper inflation with Infinite QE Forever, coupled with zero percent rates. The Gold price will rejoice.
  2. The USEconomy embarked on a disastrous course 20-30 years ago, expecting financial engineering to bear fruit. It brought disaster and bankruptcy, ruining the Greenspan Legacy. The failure has occurred on the global geopolitical stage, as the USGovt attacks its enemies and badgers its allies to remain within the King Dollar Court. Now the only option left is hyper inflation with Infinite QE Forever. The Gold price will rejoice.
  3. The debt burden for the USGovt has gone completely out of control, surpassing $21 trillion quickly. Worse, the over $1.3 trillion in fiscal deficit combines with the over $1 trillion in trade deficit, so as to put the United State on display as the next Third World nation on the map. A Balance of Payments Crisis has begun, certain to blossom. The USGovt must finance its debt, and will do so by purchasing its own debt. It is essentially a hidden monetization of debt by means of the derivative tools led by the Interest Rate Swap contract. The deficits must be funded. Now the only option left is hyper inflation with Infinite QE Forever, using these nefarious engineering tools. The Gold price will rejoice.
  4. The United States cannot halt its wars, and is obligated to feed the military industrial complex. Such is the epitaph on the national tombstone, endless war. It is possible that eventually the USMilitary will wage war against our own allies, but surely in a hidden manner, laying blame on Russia, China, or Iran. The costs of military forces with weapons is enormous. The USGovt budget for military purposes is greater than the military budgets for the rest of the globe combined. The benefit is negative, as the economies are destroyed while the costs add to the USGovt deficits. Most of the missing $21 trillion is directed at the Pentagon, where not a single audit has been completed in 40 years. The deficits must be funded. Now the only option left is hyper inflation with Infinite QE Forever, coupled with zero percent rates. The Gold price will rejoice.
  5. Prized stalwart corporations next will falter, bleed red ink, and seek support. Start with Boeing and Wells Fargo, each showing signs of terminal business. Boeing has suffered grounding of aircraft, flawed design, canceled orders, resulting in magnificent quarterly loss. Wells Fargo has likely suffered massive Chinese fund withdrawals, while at the same time pilfered client accounts. The bank surely does not receive the same pampered attention as those located in South Manhattan. Next might be one or two Wall Street firms to approach financial failure, like Bank of America or Citigroup. The energy sector exposure is gigantic, led by the shrinking shale sector. The Jackass expects the USGovt, in concert with the USFed, to monetize these dying firms, under the national security pretext. The deficits must be funded. Now the only option left is hyper inflation with Infinite QE Forever, coupled with zero percent rates. The Gold price will rejoice.

The reaction by financial markets around the globe to Infinite QE Forever endorsed by the USFed, joined by the Euro Central Bank, will be a powerful upward move in the Gold price. It might be accompanied by a big hit to the USDollar, but that is not certain. The lower volume of global payments in trade, based upon the USD, will result in more weakening of foreign currencies, while resulting in a higher USD exchange rate versus those other currencies. THE ONLY CERTAINTY IS A MUCH HIGHER GOLD DEMAND, AND RESULTANT HIGHER PRICE. The Jackass expects discontinuous upward leaps in the Gold price in the next several months and couple years. That means big jumps overnight, like $100 or maybe $200 per ounce price movement in the Gold price. These jumps will come later on.

QUICK GLOBAL BREAKDOWN SIGNALS

Numerous are the signals, from the United States and many countries, from several sectors. Consider some diverse miserable indexes, which lead the person with any remaining intelligent brain matter capital betwixt the ears to conclude the global economic condition is very bad. Let the pictures tell the story. The US Federal Reserve and Euro Central Bank will react with Infinite QE Forever, move toward the 0% rate. At the same time, they will be compelled together toward monetizing certain icon companies.

Note the miserable useconomic cyclical growth estimate of minus 4.4% from a Wall Street source. Morgan Stanley Research is highly respected. The graphic shows the 12-month moving average, a smoothing method. The USEconomic recession will soon be recognized, even by the corrupt stat rats in the USGovt. This is a leading indicator, with negative signal.

Japanese machine tool orders are down 38% year over year. The Japanese and Germans are global leaders in this niche. This is a leading indicator, with negative signal.

The Singapore electronics exports are in sharp decline. The economic recession is global. This is a leading indicator, with negative signal.

Global manufacturing is in a crisis mode, seen in the Global PMI index. In all, 14 straight months in decline, and 17 of the last 18 months. The downturn is worse than in 2008. Expect global stimulus very soon, but initially maybe recognition of the widespread recession. Confirmation comes from Germany. The German flash manufacturing PMI slumped to a seven-year low. Their index fell to a reading of 43.1 in July, from 45 in June, according to IHS Markit. Any reading below 50 indicates contraction. These are concurrent indicators, with negative signals.

More confirmation from the USEconomy. The Empire State manufacturing index saw a calamitous decline, the largest monthly decline ever seen. It covers the New York State region. The US manufacturing surveys paint a worrying sign of marked declines. Also the Richmond Fed unexpectedly crashed to lowest in over six years as order backlogs disintegrated. It covers the Virginia region. These are concurrent indicators, with negative signal.

The USEconomic inventory levels continue to rise, as new order data begins to enter negative ground. The bloated inventories mean very mild new order activity in the near future, as they must be drawn down. As an example, orders for heavy trucks plunged by 69% in June, after plunging by 71% in May. The distribution supply sector is in terrible shape as a result. Consider a nugget, a strong signal of negative type. The company MMM is a basic consumer product firm with diverse conglomerates. They announce a profit decline of 39% amidst lower global sales. These are concurrent indicators, with negative signal.

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Jim Willie

Jim Willie

Jim Willie CB, also known as the “Golden Jackass”, is an insightful and forward-thinking writer and analyst of today's events, the economy and markets. In 2004 he launched the popular website http://www.goldenjackass.com that offers his articles of original “out of the box” thinking as well as content from top analysts and authors. He also has a popular and affordable subscription-based newsletter service, The Hat Trick Letter, which you can learn more about here.  

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