Gold Daily And Silver Weekly Charts - FOMC and 12-12-12

The Fed did the completely expected today, pledging to continue to expand its balance sheet in buying sovereign and mortgage debt at the pace of $85 billion per month until unemployment drops below 6.5% and/or inflation rises above 2.5%.

Considering that both measures are tacitly rigged and phony, that pretty much means that Benny will print until the exhaustion and collapse of the dollar, or until it suits their interests not to do it. 

The only surprise in Benjy's press conference was that he grew up in rural South Carolina and goes back for visits. I didn't see that one coming.

The money shot today was when the male spokesmodel on Bloomberg said 'and gold is up only five dollars after that Fed announcement.' All that capping just to try and make the impression that QE until hell freezes over isn't inflationary? I hope it was worth it.

Stocks pulled back from the necklines on their inverse head and shoulders, and gold and silver rallied back, but the pop higher was pale in context because of the pounding the metals had taken for the past week. There were no big drops, but lots of cheap shots and quick hits.   

So what next. It's all fiscal cliff now, all the time, until the end of the year. Or the real Mayan calendar end date, which is not 12-12-12 like so many think. It is 21 December 2012, which is also the last date by which legislation can be submitted to the US Congress for consideration this year.  So if you are planning on the end the world, its time to RSVP.

I really cannot say what these fiscal cliff jokers are going to do, but I do know that Obama has the whip hand, even if it was ten years in the making, and after the previous twenty times that the Republicans used and abused his good will gestures in negotiating against himself, he is likely to let it ride.

The cliff is phony anyway, although I am sure it will be used as a looting opportunity on Wall Street.

Once the cliff passes, 70% of the deficit evaporates.   Horrors!  And they have plenty of time to tweak it in the new Congress so the effects are very unlikely to be lasting.

I am almost positive the US is heading into a recession next year anyway, the policy decisions are so cockeyed against the median wage earner and consumer.  They might try and hide it by throwing money at it, and there lies stagflation, even if they hide the inflationary part.

El Cliffo Fiscal gives the Republicans political cover, because now the tax cuts expire and they cannot be blamed for raising taxes. So Grover and his bully boys cannot be madder than usual that they are not warlords in Somalia rather than citizens in a Republic. And then the Republicans can cut a deal and lower taxes somewhat and look like heroes.

I don't have a lot of confidence (lot = greater than zero) in Obama and the Dems making a decent deal for the American people.   The Republicans are whores for the monied interests and are as bad or worse.  I think it was Gore Vidal who said that the Dems and GOP are just two different wings of the Big Money Party, and that sounds about right.

So let's see what happens.

In the short term, the short side of a hedged stock/bullion pair seems like the thing to do.

SP 500 and NDX Futures Daily Charts

The FOMC did the expected today, and the market yawned.

Its all fiscal cliff on the informercial channels now until year end.

Federal Reserve Adjusted Monetary Base Watch - What The Financial System Needs Is More Power

Let's see what the new QE does to the Fed's Balance Sheet growth over time.

Although the 'spike' in the post financial collapse recession skews the percentage scale, the growth in the monetary base was fairly strong during the housing bubble expansion post-911.

That third chart might be labeled 'a Decade of Policy Errors.'

There are some who will observe that the third chart shows that Modern Monetary Theory would be a wonderful idea because it takes the monetary policy levers away from the evil Federal Reserve Bank (and the often dodgy sovereign debt markets).

Let us consider what a blessing it would be to put that much discretionary, and apparently almost unrestrained, power to create money, manipulate market prices, and transfer wealth in the hands of those wise and selfless paragons of civic virtue, the professional politicians in the Congress, the Treasury, and the Administration, so they can exploit the monetary power until exhaustion or collapse.

This is not to say that the Fed will not also achieve that end. It does seem to be the historical trend for fiat money. But it very probably is a matter of degree and duration.

The financial system is not broken, distorted, and corrupt. It just needs more power. So let's rewire it...

Fed Statement: QE and Exactly As Expected

The Fed will be expanding its Balance Sheet at $45 Billion per month in what seem to be non-sterilized purchases of government obligations, in addition to their existing program of purchasing $40 Billion in mortgage securities each month.

This is a 'save the banks' program that will have no serious effect on the real economy.  And if austerity is enacted in order to support this subsidy to finance, the effect on the real economy will be devastating.

So one could say that this is QE without a forseeable end, except perhaps in meaningful reform or a de facto default, whichever comes first. 

Significantly there is no purchasing of non-traditional instruments such as equities or more private, non-bank held debt.

As for the policy, there is no real change, just an affirmation of what they are currently doing.

It appears that the slamming of gold and silver into the announcement was a bit unnecessary, excepting of course for the usual private profiteering motives of insiders who are infesting the financial system and draining it of its vitality and ability to enable the effects of monetary policy.

It is like warlords seizing the Red Cross supplies before they can reach the people.  Does that seem too harsh?  I think it is a rather apt comparison.

Press Release
Federal Reserve Statement
Release Date: December 12, 2012

Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed the asset purchase program and the characterization of the conditions under which an exceptionally low range for the federal funds rate will be appropriate.