SGM Metals LLC: FED John Williams "Current Economic Data Suggests Further FED Action"

July 24, 2012 - PRLog -- FT.com reports: [ The recent slowdown in US economic growth is forcing the Federal Reserve to consider something for which it has always set the bar very high: a third round of quantitative easing.

A decision on whether to launch another round of asset purchases remains in the balance as the central bank wrestles with a complicated economic outlook and uncertainty about the costs and benefits of its easing tools.

In an interview with the Financial Times, John Williams, president of the San Francisco Fed, said that the weak outlook and the extent of downside risks “would argue for further action” but the counter-argument was doubts about tools such as QE3.

“We are looking very carefully at the economy, trying to judge…whether or not the economy is likely to continue to make progress towards lower unemployment,” said Ben Bernanke, the Fed chairman, in recent testimony to Congress. “If that does not occur, obviously we have to consider additional steps.”

The Fed will not formally update its forecasts until September but crucial data due for release this week will weigh at its next meeting, which concludes on August 1. The Bureau of Economic Analysis is due to publish revisions to its gross domestic product data going back to 2009, along with its first estimate of growth in the second quarter of 2012.

If the Fed does choose to ease further the most likely option is more asset purchases, QE3, aimed at driving down long-term interest rates. Such a program would probably target mortgage-backed securities at least in part, both because the Fed already owns a large share of outstanding long-term Treasuries, and for an extra effect on mortgage rates.]

I have an increasingly overwhelming feeling we will get the long awaited QE3 announcement by the August Jackson Hole conference if not sooner. Call it intuition, call it a gut feeling, or just chock it up to being able to read the writing on the wall with the constant negative tone of the economic data for the US we have been given for the past few weeks. It is interesting that even though we have had horrible economic activity in the US and yet there always seems to be an overwhelmingly obvious effort to paint the data in a better light than it would naturally reside. But for some strange reason we have seen an oddly honest round of economic data come out that illustrates the fact that the US economy is in fact not ‘on the mend’ nor has there been any effort to spin the data in a positive light? The media outlets that are usually the cheerleaders for the recovery effort have been acting humdrum and pouty when they discuss the data & are all but begging the FED to get QE3 off the bench and into the game. All of these signs together paint a very obvious foreshadowing in my opinion that the FED will in fact bring QE3 to bear on the market. The real question is what impact will this have on the ‘recovery’ & whether or not there will be any net benefit to the economy itself or will it end up being just another blank check to the banks again?

We must remember that the solution to an out of control debt bubble is not more debt, but the federal reserves doesn’t seem to be asking for any input from those who have been crippled by their actions up to this point. Once we accept that debt problems never have & therefor never will be resolved with the creation of even more debt, the question now becomes what impact will this event have & how do we prepare ourselves to offset the damages that may occur. The answer to excessive fiat debt creation always has been to shield yourself with real money in hard assets such as gold & silver bullion that can not be inflated which is the core premise of a fiat system of paper money. You see when those in charge create a dynamic where their paper money system has been inflated to a point of wealth destruction the desperation to do something manifests & those who control the levers of power will do what they know to do, print more money & hope it finds its way into the economy in a beneficial manner. The problem is when the economy is this insanely overinflated the volume of money that is offered as a solution increasingly becomes less impactful & therefor the volume of inflation offered as the solution must increasingly swell to unimaginable levels which serves to destroy the wealth of the middle class through the invisible taxing power of consumer inflation.

The method by which the FED has opted to ‘attempt to jump start the economy’ has been to put the US taxpayer on the hook for many decades to come & directly hand the money to the banks. This program is one of massive hope as we are forced to hope the banks will do something constructive with the trillions in bailout monies rather than be selfish and use it to cover up their tens of trillions of dollars worth of exposure to the $2 QUADRILLION derivatives bubble that threatens the global banking system. As you have probably figured out by this point the hope plan isn’t working. Partially because the bank’s balance sheets are so screwed up with risk fueled by greed & the other part is that the FED in vain hopes to limit the inflationary consequences of their game plan have ordered the banks to buy treasuries as not to swamp the economy directly with the newly printed tidal waves of paper dollars. This has helped the FED by indirectly keeping the US Treasuries being bought, which gives the illusion that someone in the world still has confidence in the US economy & the govt. itself, while flooding the banking system with money to cover their horrendous losses incurred since the housing crash began. So the govt. has benefited by having the treasuries bought giving the illusion of faith in the USD. The FED has benefited from paying the banks to gobble up the treasuries they would be on the hook to buy to create the illusion of confidence. The banks have benefited as they have been flooded with tens of trillions of dollars to cover up their tremendous losses from stupid investments. So we have a dynamic where everyone at the top has been showered with endless monies that put the citizens on the hook for this ‘get out of jail free card’ that has kept them from going to prison. Instead allowing them to be fashioned by the media as the braves souls who fought gallantly to keep us from careening off the cliff. Up is down and down is up I guess?

Its now time to look towards preparing for the next leg of the recession. What will the world look like if China is successful in drafting the economies of the world to follow them into the future using their currency? How many tens of trillions of US dollars are there in the world that we are unaware of that have been collecting dust in central bank vaults around the world over the past 5 decades that were created every time the US had an economic problem and the FED turned on the good ole printing press? What will the consequence be at home when these fancy pieces of paper get marked “return to sender” and come home to the US? The FED has proven time and time again they are good at pumping paper dollars into the stratosphere but how good will they be at mopping them up so we could avoid a hyperinflationary scenario? WE DON’T KNOW BECAUSE THE FED HAS BEEN A ONE WAY STREET FOR CREATING TIDAL WAVES OF MONEY PRINTING, THEY HAVE NEVER REALLY BEEN FORCED TO CLEAN UP THEIR MESS BEFORE! Gold & silver bullion insurance policies will soon become the highest demand item when this reality arrives so why not get ahead of a trend and benefit rather than staying in the cheerleader herd? Remember that it is ALWAYS better to PREPARE your portfolio than to try and REPAIR your portfolio after the damage has begun and the level of panic rules out common sense being the primary thought choice! Currently I feel that you should be investing in the stock & bond market just about as much as you should attempt to remove your appendix at home on the couch with a butter knife and a flash light. Tick, tock.