We’re At the End Game For Fed Intervention

Thursday, September 1, 2011
By Paul Martin

by Phoenix Capital Research

he Fed cannot and will not announce QE 3 barring a market bloodbath or major failing. It certainly won’t announce QE 3 when commodities prices never really cooled down from their QE 2 highs.

Commodities as a whole are only 8% off their QE 2 highs. Some commodities are actually higher than during QE 2. If the Fed were to announce QE 3 in this environment is would KILL the US Dollar and the US consumer. End of story.

So instead, the Fed is engaging in verbal interventions, trotting out guys like Evans who, if he were a Doctor, would be in jail for malpractice. Only in economics can you be completely wrong and promote ideas that make people starve and lose their retirements and not be arrested.

After all, why announce QE 3 when you can get the exact same impact just from speaking in public? It’s a heck of a lot easier. And it doesn’t involve people rioting and the economy imploding (yet).

So if you’re banking on QE 3 coming in September, you’re in for a rude surprise. Unless the S&P 500 craters to below 1,100 in the next three weeks, QE 3 ain’t coming.

The Fed has already gone too far with QE. QE 2 spent $600 billion and didn’t accomplish anything (as I and several commentators have recently noted). The Fed’s balance sheet (roughly $3 trillion) is already larger than the economies of the UK and Brazil. Has anyone bothered to ask how exactly the Fed going to unwind this? Everytime the Fed halts QE the markets implode. Do you really think the Fed could withdraw even $1 trillion in liquidity without forcing systemic collapse?

Folks, we’ve already crossed the Rubicon on Fed intervention. There is no way we can undo what the Fed’s done. All that is left is the inevitable debt restructuring and market collapse. The Fed will be dismantled within five years (if not, it will be significantly reformed). Bernanke is going to be stepping down within 18 months and possibly facing lawsuits.

This is the facts of the matter. The QE 3 debate is pointless. We’ve already begun the End Game for the Fed and its interventions. Sure, we might prop things up here and there temporarily, but the great unwind has begun.

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