Fed Not Ready to Stop Spending

Let me say right from the start that one of the most important things for investors to know at this time is that the Federal Reserve is not likely to stop its stimulus program in the near future, as some reports are theorizing.

The only caveat to this reality is if an unforeseen event or calamity takes place that would change the policies of the American central bank. One of those events would be a huge change in the jobs numbers, whereby the unemployment rate plunged to levels approaching the stated goal of 6.5 percent. There is nothing to suggest that will happen any time soon. Another would be rising inflation, which would betray the inevitable effects of the loose money policies the Fed is engaged in. Either of those two scenarios would bring a rapid response from the Federal Reserve.

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Bernanke Confirms Fed Stimulus Concerns Hot Air

About a week ago I wrote that there was absolutely no doubt the quantitative easing of the Federal Reserve would continue. That was in response to the nonsensical idea that because of the minutes of the latest meeting a couple of officials expressed concern over continuing to stimulate the U.S. economy.

Anybody that understands a modicum of economics knew this was all smoke and mirrors, as since the last introduction of stimulus, the unemployment figures have gone nowhere; even going slightly higher.

Bernanke's defense before Congress of his continuing to print money and throw it into the economy ensures there is never going to be some type of premature and surprising exit from that plan.

Other than a little strength in housing, there's nothing to suggest Bernanke would even think of starting to wind down the process.

So as far as stimulus has an impact on commodities, that part of the puzzle will remain in play, and anyone making investing decisions based upon rumors to the contrary will be making a big mistake, unless they understand the temporary effects the news will bring for short-term moves.

Silver, Gold Await Printing Presses

While there is no doubt the Federal Reserve and other central banks around the world will continue to ramp up the money printing presses, we remain somewhat in a holding pattern, at least in the United States, after Ben Bernanke announced the Fed will buy $40 billion in mortgage-backed securities on a monthly basis indefinitely, with indefinitely measured by the health of the job market, with hints the Fed and Bernanke want to see it at about 5.5 percent.

Even though some business and economic writers and investors have attempted to paint gold and silver has having reached a plateau at this time, with the probability they will fall in price, there is not doubt nothing will stop central banks from feeding the out of control spending habits of governments around the world, and the price of gold and silver will continue to rise over the next 10 years, with gold and silver miners, which currently, for the most part, are enjoying low valuations, will bring investors solid returns, especially for silver investors, where the gold-silver ratio continues to be far higher than historical levels, standing far beyond the usual 16 times ounces of silver it takes to buy an ounce of gold, to weigh in at a hefty 54 times the usual amount it takes to buy an ounce of gold with silver.

That alone will dramatically push up the price of silver, as its historical ratio to gold should have it stand at over $100 an ounce as of this writing.

So in the short term, in spite of the announcements by the Federal Reserve and the ECB to stimulate the respective economies of the United States and the euro zone, they still haven't launched their buying programs, which has temporarily kept the price of silver and gold in holding patterns.

It's apparent in the case of Bernanke that he's waiting to implement QE3 when it is seen as not an attempt to influence the upcoming presidential election. With that soon to end, it won't be much long afterwards when it'll begin, and then silver and gold will jump, and it could even before that as investors begin to price in the effect of the stimulus on precious metals, and the resultant fall in value of the U.S. dollar.

For the European Union, what is causing the holdup there is the temporary decision by Spain to attempt to make it appear they have a chance of not needing the money to bailout its economy. That's a fallacy, and largely based upon the need to make it look like they're fighting to keep their people from having to face forced austerity in order to secure the loans.

But like Germany, it will cave on the borrowing end, just like the German leaders do on the lending end. Spain will accept the loans, and when they do, that will also cause silver and gold to rise in price.

One uncertainty in regard to currencies is the major competitors are all debasing their currencies through stimulus programs of one type or another, so it's unclear whether there will be much in the way of the impact of the fall in the U.S. dollar on gold and silver. In that regard inflation and safety will be the impetus behind the rise in the two precious metals; much more so probably than the weakening of the U.S. dollar. Again, it depends on how the market reacts to and views the impact of QE3 in the U.S., and if it deems it as more dramatically weakening the U.S. dollar against major competing currencies, we could see it push up the price of silver and gold even quicker and further than most think.

Another short-term consideration is the selling off of assets by those making decisions based upon tax strategies. That could push down silver and gold some as investors sell off at foolishly low prices. But there is no doubt the duo will continue to rise, even in the short term, as you simply can't bet against the practices of the Federal Reserve and other central banks, which have placed a floor under the precious metals, and which will soar up from there for years to come.

It's a matter of how to invest in silver and gold, not whether you should.

Finally, it is believed that QE3 could even expand beyond the $40 billion spent monthly as Operation Twist comes to an end. The thought is Bernanke will probably start to buy treasuries again in an attempt to jump start the economy, even though that has repeatedly failed to achieve results.

Gold and silver miners, because of ridiculously low valuations will soar in price as an asset class, with some doing far better than others of course. But the rising price of silver and gold, and the relatively new focus on dividends will be a powerful attractant to investors, who will be able to cash in on both fronts if they invest in the right companies.

Another element to watch is mergers and acquisitions among miners, which will make a lot of money for those that can anticipate where those moves are likely to be.

Of course in the end, gold and silver are first a place of safety and hedge against inflation, so that is the number one priority for those putting money in the precious metals. But with little in the way of growth in equities, they will increasingly be looked at by general investors as places they can also make money over time. That will also push up the price of miners, which will benefit everyone holding positions in them.

The silly talk of a gold or silver bubble is off the table at this time, as the everyday investor has yet to really enter the market in a significant way, and until that happens en masse, there is little we need to be concerned about concerning a bubble.

We will need to watch it closely, but we have yet to see the outrageous bidding up of gold and silver prices, and even when that does happen, which shouldn't be for a while, it can sometimes take several years before the prices stop climbing.

For now, investors way for the printing presses to start up, and when they do, there is nothing in the way to keep the price of gold and silver from jumping in the short- and long-term.

Jim Rogers Blasts Bernanke, Fed ... Again

Seeming to have a calling in the area, billionaire commodity expert Jim Rogers continues to go on attack against the Federal Reserve and Ben Bernanke when given the chance, as he sees the practices of both as extremely detrimental to the economy.

He has continuously been an opponent of the policies of the Federal Reserve, not just under Bernanke, but since its inception 1913. He sees the printing of money out of thin air as an economic evil, and he's of course right, when you consider the U.S. dollar has lost over 95 percent of its value since the Fed was created.

As for Bernanke, he considers him as one of the worst of the Fed Chairman there have been, saying he understands nothing about economics, and the Chairman of the Fed has become a political position, and not one that is based upon the needed understand of economics in order to understand what is needed to be done.

Rogers said this of Bernanke: "Mr. Bernanke does not understand anything about currency. He does not understand finance. He does not understand economics. All he understands is money printing; that's the man's whole intellectual career."

Of course the Fed should be shut down, but as long as it's not, it's best that those that at least have a basic understanding of economics and the consequences of printing money from nothing. If not, they will drive the United States in default, which it is already on the road to.

"Unfortunately, most of the heads of the Federal Reserve in United States history have not understood what's going on," added Rogers, "It's a political appointee, and whoever can brown-nose the best gets the job."

With over $220 trillion in unfunded liabilities, and the Federal Reserve being used as a national piggy bank by politicians in order to make promises that will get them re-elected in the short term, it's already past the point of no return, and it's only a matter of when, not if, the U.S. government defaults.

With the printing presses ramped up around the world in major economies, Rogers recommends that investors continue to invest and hold onto gold, even though when the turbulent times come many will wrongly throw their money at the U.S. dollar as a perceived place of safety.

Silver Wheaton (SLW) Still a Buy

Some financial writers are attempting to cast doubt on silver and gold specifically, and also precious metals streaming company Silver Wheaton in particular, on the dubious and weak unemployment numbers, which allegedly dropped below 8 percent, producing the best results for the Obama administration about a month before the presidential election.

Former General Electric (GE) CEO Jack Welch asserts the numbers have been manipulated in order to cast Obama in a much brighter light than he should be. But even if they're close to the actual unemployed, all that means is a bunch of retailers hired temporary, part-time help, which they'll shed soon after the inventory is counted at the end of the year. Consequently, as usual, the unemployment numbers will jump up after the holiday season.

A major impediment from those making it look like the so-called improving economic situation in America being believable is that most are looking at the weak supply and demand circumstances, along with the assumption QE3 will end sooner than later as a result of the "improving" unemployment numbers.

That's a fallacy, and the open-ended monthly acquisition of mortgage-backed securities by the Federal Reserve is far from ending, and hints have been made that it won't stop until unemployment drops below 6 percent, and possibly as low as 5.5 percent. That isn't going to happen any time soon.
With Europe and China slowing down considerably, what could possibly be the catalyst to really end the ongoing recession? There aren't any, and that means QE3 will go on for a long time into the future; probably for many years.

About the only real positive in the American economy is the probability the housing market has reached, or is close to reaching a bottom. But even there it'll take years before a rebound will happen which will bring prices back to pre-2008 levels.
Even so, new construction could begin on homes in America, which would be a positive for silver and other commodities on the demand side, but which won't do much to change the jobs picture in the next couple of years.
As it all relates to Silver Wheaton, the price is driven more by QE3 at this time than any other factor, and the ongoing stimulus has formed support for silver prices, which means it has also put support under Silver Wheaton as well.
That, and the recent deal between Hudbay and Silver Wheaton shows the management is still seeking to boost its silver resources, as well as gold, which locks in revenue streams for years.

Silver Wheaton will only pay $5.90 an ounce for silver from Hudbay, which brings to overall total the company pays for silver production from all its deals to about $4.04. The operating margin enjoyed by Silver Wheaton are now about 75 percent. What's not to like about that?

As for real unemployment, the U-6 rate remains the same, which stands at 14.6 percent of Americans. That includes the underemployed or those that quit looking for work. Those are the numbers that really count, and that means there is no chance the Federal Reserve and Ben Bernanke are even close to thinking about easing up on the easing. Those that think they are don't understand the motivations and reasoning behind QE3.
This doesn't even take into account inflation and the necessity for the Fed to unwind its position.

Taken together, Silver Wheaton remains a great buy, and those who don't own the company will regret they didn't get in before the price of silver and Silver Wheaton take off to even more dizzying heights.

Silver Wheaton closed Tuesday at $38.70, falling $0.99, or 2.49 percent.

Gold in Largest Two-Day Drop Since August

For the second day in a row Gold prices fell on Monday, resulting in the biggest two-day drop since August.

The strange idea that a bunch of seasonal, part-time hiring in the latest jobs report, which may have pushed the unemployment rate down to a still hefty 7.8 percent, made some investors feel it will pressure the price of gold down because of a possible stronger economic recovery.

It's ludicrous of course, as not long after the end of December the temporary, part-time workers will be let go, and the unemployment numbers will shoot back up, if not before then.

After falling against the euro to a two-week low, the U.S. dollar finally managed to pull itself up, as some believe a stronger recovery than expected, which would push up the price of the U.S. dollar if it were true.

It isn't of course, but that's the faulty assumption being reported in the press; more than likely in hopes of attempting to make Obama look like he's doing better than he really is with the economy.

With weak earnings expected, it's hard to point to anything really positive about the U.S. economy, other than the probability the housing market may have bottomed out. In that case, even if it hasn't bottomed out, it is probably close to it, although that will have very little impact in the near term on the economy either way.

As long as Ben Bernanke and the Federal Reserve continue to create money out of thin air by acquiring $40 billion a month in mortgage-backed securities, the price of gold and silver, along with other hard assets, will continue to go up over time.

It's likely the Fed won't stop stimulating until unemployment drops below six percent, with some hint from some members of the Fed that it may not stop until it reaches 5.5 percent.

The December contract for gold futures in the U.S. settled at $1,775.70 an ounce, down $5.10, or 0.3 percent. It's up by over 13 percent in 2012 so far, the 12th year in a row it'll finish in positive territory.

For silver, it closed at $33.98 an ounce, down 1.4 percent. It has also dropped significantly over the last couple of days, down over 3 percent during that period.

Platinum closed at $1,689 an ounce, falling 0.9 percent. Palladium ended at $653.47 an ounce, a decline of 0.5 percent.

Disastrous Fed Policy Does Provide Road Map

Even though the decision by Ben Bernanke and the Federal Reserve to initiate an open-ended acquisition of mortgage-backed securities to the tune of $40 billion a month is a disaster, the good news is it does provide a roadmap for investors who would be smart to move from the U.S. dollar to hard assets.

By committing to attempt to bolster the mortgage sector, Bernanke and friends hope to push the prices of homes up in an attempt to boost the overall economy. Has he and they already forgotten the housing bubble? Apparently so.

The ECB, presumably anticipating the Fed move, or having had been communicated with by the Fed beforehand, made its stimulus the week before.

Not long after those two moves other central banks around the world followed suit, wrongly believing a weak currency is better for the country. This is, in most cases, a nod towards the belief a country's exports will plunge if their currencies rise too much.

Commenting on this recently, Peter Schiff said this:

All of this simultaneous money creation will likely be a boon for nominal stock and real estate prices. But in real terms such gains will likely not keep pace with dollar depreciation.  Inflation pushes up prices for just about everything, so stocks and real estate are not likely to prove to be exceptions. Even bond prices can rise in the short term, but their real values are the most vulnerable to decline. In fact, even nominal bond prices will ultimately fall, as inflation eventually sends interest rates climbing.  But prices for hard assets, precious metals, commodities, and even those few remaining relatively hard currencies should be on the leading edge of the upward trend in prices.

Some investing options are to move towards commodities, and in some currencies that haven't had the central banks of the respective countries implement quantitative easing.

Again, now that we know what the Federal Reserve and other important central banks are going to do, it makes it much clearer on where to invest our money, as the Fed has suggested it will continue to stimulate until the unemployment rate falls below 6 percent, and possibly as low as 5.5 percent.

Ron Paul on "Gold is Good Money"

Ron Paul continues his decades-long assault on the Federal Reserve creating money out of thin air, saying on his congressional website that gold is in fact, "good money," against the anemic quality of paper or digital money.

According to Paul, "Fiat money is not good money because it can be issued without limit and therefore cannot act as a stable store of value."

Also of significance is Paul's exposure of the central banks, government/media axis, which continues to speak badly of gold because the "defamation of gold wrought by central banks and governments is because gold exposes the devaluation of fiat currencies and the flawed policies of government. Governments hate gold because the people cannot be fooled by it."

Paul has had other allies for years, including those associated with the Austrian school of economics, but he cites others who are apparently starting to get the message, such as the Bundesbank president, who recently stated that gold is "a timeless classic."

Also noted are a couple of analysts at Deutsche Bank (DB), which also said gold is good money.

According to Paul, gold should be considered good money because it offers everything the market (people) demand, "it is divisible, portable, recognizable and, most importantly, scarce - making it a stable store of value. It is all things the market needs good money to be and has been recognized as such throughout history," says Paul.

Contrary to the assertions of central banks around the world concerning gold not being real money, they continue to acquire more gold holdings in response to the outrageous boost in fiat money into the global economy.

Ron Paul concludes this on the evil of fiat money: "A fiat monetary system gives complete discretion to those who run the printing press, allowing governments to spend money without having to suffer the political consequences of raising taxes. Fiat money benefits those who create it and receive it first, enriching government and its cronies. And the negative effects of fiat money are disguised so that people do not realize that money the Fed creates today is the reason for the busts, rising prices and unemployment, and diminished standard of living tomorrow."

He is right. Among other things, as mentioned above, inflation is always the hidden tax associated with the creation of money out of thin air.

It has already been shown to be ineffective to boost the economy, as evidenced by the anemic results of QE1 and QE2, and will be the same results of QE3 and beyond.

People should have the option to choose what money they want to use for transactions, savings and investing, and the central banks and governments around the world fight this because it knows if that were to happen, it would expose the negative effects of fiat money, as those holding gold would wildly prosper in contrast to those using paper and digital funny money.

Is Goldcorp (GG) a Good Deal at This Time?

Goldcorp (NYSE:GG) is one of largest gold miners in the world, although it has had a tough year in 2012, having just recently surpassed its price on January 1 of the year.

Lower gold prices and higher costs throughout the year have weighed on the company, although a rebound since the latter part of July where it was trading for under $33 a share has helped the company, as expectations of further stimulus, which were of course accurate assessments, helped push the price of gold up, along with its share price.

As measured by global resources, Goldcorp has one of the least expensive valuations of the gold miners. Others having competitive valuations based upon the same criteria are Eldorado Gold (EGO) and IAMGOLD (NYSE: IAG)

Also hindering the company for 2012 have been the drought which slowed production at its Penasquito mine, and also its Red Lake mine, where seismic activity interfered as well.

One positive for the year, and also going forward, is the 41 percent stake Goldcorp holds in Primero Mining (NYSE: PPP), which is poised to benefit Goldcorp as production at its San Dimas mine closes in on meeting full expectations.

With gold assuredly about to jump in the next several years, and support in place because of the open-ended QE3 implemented by the Federal Reserve and Ben Bernanke, it may be a good time to get in Goldcorp at a decent price before the temporary impact on its two major mines are over, and the price of gold begins to shoot up.

Once that happens, it's unlikely we'll see Goldcorp and some of the other miners at these prices again for some time to come.


 

Bernanke Defends QE3 in Washington

Talking to reporters in Washington, Federal Reserve Chairman Ben Bernanke attempted to defend the latest round of stimulus, dubbed QE3, which will acquire $40 billion in mortgaged-backed securities on a monthly basis, until the Fed is satisfied the economy can sustain growth on its own.

Never mind that the economy got no help for QE1 and QE2, and it is highly unlikely QE3 will do anything but boost inflation over the long term.

Strangely, Bernanke asserted the Fed isn't an enabler of the government in allowing it to continue to operate gigantic budget deficits. It does all of that and more, and is part of the problem and not the solution.

Bernanke stated this as the goal of the latest stimulus: "... we would like to see as many Americans as possible who want jobs to have jobs, and that we aim to keep the rate of increase in consumer prices low and stable."

The Fed has also stated the other goal is to provide price stability in the markets, something that can't happen when pouring money created from nothing into it.

Concerning monetizing government debt, Bernanke said, "That's not what's happening, and that will not happen. We are acquiring Treasury securities on the open market and only on a temporary basis, with the goal of supporting the economic recovery through lower interest rates."

That's a bizarre statement targeting those who are clueless as to how the monetary system works. To buy Treasury securities is to monetize the government. That's why there are growing concerns over how much U.S. debt China owns, which have been propping up the U.S. government in order to sell inexpensive products to Americans.

To say that creating money out of thin air and acquiring Treasure securities isn't monetizing government debt, isn't even true. That's exactly Bernanke and the Federal Reserve are doing.

Where is the government getting its money from if that's not the case?

Also, incredibly, Bernanke claims the implementation of QE1, QE2 and QE3 hasn't hurt savers. You mean people not being able to buy into a money market fund or other safe investment because interest rates are almost zero hasn't hurt them? Does he actually think any of us believe that?

Even in an inflationary environment of about 2 percent people are losing money and buying power in low-risk accounts. How does that not hurt savers?

Part of the reason this is done is to pressure consumers to spend rather than save. At best, they may plow their money into much riskier assets; assets they don't understand and stand to lose a lot of money in as a result. That's not hurting savers?

Silver Now Outperforming Gold

Over the last three months, the price of silver has jumped about 25 percent, while during that same period of time, gold has performed at about half that level.

Most commodities experts have been saying that silver is highly likely to outperform gold over the next decade, as the price of gold has soared so high in the previous decade that it'll be hard to duplicate that going forward, even as more industrial demand for silver continues to grow even as silver supply is tightening.

Add to that the new practice by the Federal Reserve and ECB of initiating open-ended stimulus programs, and you have support under both metals, with silver poised to break out even more once the sellers complete their current disposal of silver assets, which has pushed the price of silver and related companies and ETFs down.

Some rightly point out that economies important to silver demand have been slowing down, with the most significant being China, but that will change if that continues to go beyond the attempts by Chinese leaders to cool off their economy, which they've been doing for some time now.

There is no doubt the Chinese will stimulate if that becomes the case, and silver demand will continue to rise, even if there is a temporary lull.

The world is now in stimulus mode, and it doesn't matter whether the demand for silver is based primarily on that reality. What's the difference if silver prices move up because of stimulus or industrial demand that is organic in nature? Either way, silver demand will rise, even though over the long term the question of sustainability rises.

But we're talking years there, not months, and so silver prices should continue to rise over time, even though, as usual, it will have a more bumpy ride than gold.

Finally, the underlying assumption and assertion by the Federal Reserve is it stands ready to stimulate even more if the jobs market doesn't improve. If that were to happen, it would assuredly give the price of silver another big boost.

Again, most of this is only a matter of when, not if. In the short term, China and Europe may weigh on the price of silver some, but once Spain caves and requests stimulus, that should change quickly, and with most investors understanding China has deliberately slowed their economy down, it won't be much of an impact on silver prices, as there are really no surprises there except for those that don't do their homework.

Silver has become a long-term investment option, and one that should be invested in that way. There is no doubt whatsoever that it will be among the strongest performing assets in the next decade, based upon industrial demand alone. Include the long-term stimulus strategy of the U.S. and Europe, and you see how that will be the case.

Nothing to Hold Gold Prices Back Now

Based upon the assertion by Ben Bernanke that the Federal Reserve is tying its QE3 program into the performance of the job market stimulus could be ongoing for the next five to six years.

with that in mind, along with the decision to keep interest rates artificially low, gold prices should continue to push up for years into the future.

The expectations are that the Fed will continue to ease until unemployment reaches about 5.5 percent. That would result in the Fed balance sheet doubling again, assuming that figure can be met over the next five years or so. If not, the sky is the limit as to how high the balance sheet would go, which will continue to devastate the U.S. dollar, and push up the price of many commodities, including gold.

As measured by the prior experience of the price of gold moving up in conjunction with the size of the monetary base in the U.S., gold prices could soar to the $3,500 to $4,000 range before it's all through. Again, that assumes the job market improves and the Federal Reserve stops printing or digitizing money out of thin air.

Will Oil Trigger Next Recession?

I was confident that the Fed had already begun printing. That seemed quite evident by the overall action in the commodity markets, the dollar, and the fact that stocks were unable to correct in the normal timing band for a daily cycle low. However, I didn’t really expect Ben would come out and publicly admit it. That one took me by surprise Thursday. I guess Bernanke wants to get full value for his attack on the dollar and make sure that markets are rising into the election.

At this point all the pieces are in place for the inflationary spike and currency crisis I’ve been predicting for 2014. We now have open ended QE that is tied to economic output and unemployment. But since debasing currencies has historically never been the cure for the bursting of a credit bubble, all the Fed is going to produce is spiraling inflation. So as this progresses we are going to see the Fed printing faster and faster as the result they are looking for never materializes. This is what will ultimately drive the currency crisis at the dollar’s next three year cycle low in 2014.

At this point, watch the price of oil if you want to know when the next recession is going to begin. As I’ve pointed out many times in the past, recessions (well, at least since World War II) have all been preceded by a sharp spike in the price of energy. Any move of 100% or more in a year or less, has historically been the straw that breaks the camel's back. Modern economies cannot survive that kind of shock. It invariably triggers the collapse of consumer discretionary spending and economic activity comes to a grinding halt.

In 2007 oil surged out of the 3 year cycle low into a parabolic advance as Bernanke trashed the dollar in the vain attempt to halt the sub-prime collapse. That 200% spike in oil is what tipped the economy over into recession, which was then magnified in the fall of `08 as the financial bubble and debt markets imploded.

I think it’s safe to say that Bernanke doesn’t understand his role in causing the recession of 08/09 as he is now making the same mistake again. I think he believes the recession was solely triggered by the financial meltdown. That was the icing on the cake, but not the initial trigger that caused the recession.

Despite the complete inability of QE to heal the economy or job market, and since he really has no other tool, Bernanke just keeps doing the same thing over and over expecting a different result, but never getting it.

Commodities are the check that prevents Keynesian economic policies from healing the global economy. Keynesian academics either don’t understand this, or refuse to acknowledge it. Until they do, or we install Austrian economic advisers in the government, we are destined to continue making the same mistakes over and over.

So we will watch the price of oil as it rises out of its three year cycle low. If it hits $160 by next summer that will probably be enough to start the economy on the next downward spiral. If politicians get involved (and I’m sure they will) and try to impose price controls, they will multiply the damage and probably guarantee that the next economic downturn escalates into a truly catastrophic depression.

Until we see the spike in oil and the corresponding damage to the economy, no one has any business try to short anything, well maybe bonds, but even that will be risky because the Fed is going to be actively trying to prop the bond market up and keep interest rates artificially low.

All in all there is going to be so much money to be made on the long side, especially in precious metals, that no one needs to fool around with puny little gains on the short side, especially in a market that is going to be hell to trade from the short side. The time to sell short will be in 2014 after the dollar’s next three year cycle low. The dollar’s rally out of that bottom will correspond with the next global economic collapse, ultimately caused by the decisions made by the ECB and the Fed this past week. I dare say if they could see the damage their decisions are going to inflict upon the world and the dire unintended consequences, maybe they would finally stop kicking the can down the road and let the economy heal naturally. Of course that would entail several years of severe pain and politicians, as we all know, are extremely allergic to that.

2014-2015 is when we are going to see the stock market drop 60-75% and the next great leg down in this secular bear market. But until then there’s probably a pretty good chance we are going to see the S&P at new all time-highs in the next 6 months – 12 months.

Source

Ron Paul Blasts QE3, Fed, Bernanke

Ron Paul took out his own economic tools and did surgery on the latest round of quantitative easing from the Federal Reserve - QE3.

“No one is surprised by the Fed’s action today to inject even more money into the economy through additional asset purchases. The Fed’s only solution for every problem is to print more money and provide more liquidity,” Paul said.

“Mr. Bernanke and Fed governors appear not to understand that our current economic malaise resulted directly because of the excessive credit the Fed already pumped into the system.”

Paul also said that the central bank is simply repeating its former actions, which did absolutely nothing to help the American economy.

“For all of its vaunted policy tools, the Fed now finds itself repeating the same basic action over and over in an attempt to prime the economy with more debt and credit,” Paul said. “But this latest decision to provide more quantitative easing will only prolong our economic stagnation, corrupt market signals, and encourage even more misallocation and malinvestment of resources.

“Rather than stimulating a real recovery by focusing on a strong dollar and market interest rates, the Fed’s announcement today shows a disastrous detachment from reality on the part of our central bank. Any further quantitative easing from the Fed, in whatever form, will only make our next economic crash that much more serious,” Paul noted.

The latest stimulus will entail the acquisition of $40 billion in mortgage-backed securities on a monthly basis with no time frame or limitations set upon it.

Evidently the Fed and Bernanke will continue to inject money into the economy until they start to see an improvement in the jobs market.

Since 1913 when the Federal Reserve was created, it has overseen and been the source of the fall in the value of the U.S. dollar by over 95 percent.

Marc Faber Says Bernanke Should Resign

Apparently believing Ben Bernanke has no shame, Marc Faber said in a CNBC interview that if he were Bernanke he would resign for screwing up the U.S. economy so badly.

"If I had messed up as badly as Bernanke I would for sure resign. The mandate of the Fed to boost asset prices and thereby create wealth is ludicrous - it doesn't work that way. It's a temporary boost followed by a crash," Faber said.

In the latest round of quantitative easing, identified as QE3, Bernanke said the Federal Reserve will acquire $40 billion in mortgage-backed securities indefinitely ... until the employment situation improves, which could be years into the future, based upon the response of the economy to the failure of prior quantitative easing initiatives.

Faber asserted and concluded this: "The money printers are responsible for this crisis. If we continue with this expansionist monetary policy we won't be facing a fiscal cliff it will be a fiscal grand canyon."

Also rightly taking a needed shot at the outrageous size of government, Faber said, "If we have an economic crisis in the Western world it's because the government makes up 50 percent or more of the economy. This is a cancer that is taking away people's freedom." He is right.

Bernanke Initiates Endless QE

Ben Bernanke and the Federal Reserve put into place a policy whereby there will be the acquisition of $40 billion in mortgage-backed securities on a monthly basis until there is a sustainable improvement in the labor market. At least that's the theory behind the action.

The FOMC said in a statement:

"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."

Also announced was the Fed would continue to have Operation Twist in effect until the end of 2012, as well as keep interest rates low through the middle of 2015.

After all of this is said and done, the most likely and predictable outcome will be an astounding and growing national debt which is already beyond the ability of Americans to pay.

And with no real positive impact on the economy coming from QE1 and QE2, there is no reason to believe anything different will come about from this latest round, which is likely to go on for years, as there's little hope of the economy rebounding in any significant manner, which means little in the way of new and sustainable job creation.

What will benefit is a number of commodities and some of the miners accompanying the sector. The U.S. dollar will now start to plunge in value against some of the major currencies.

As for the effect on the euro zone, it could get even worse there with the U.S. dollar falling, as they couldn't even do well on exports when the euro was weak against the dollar.

In reality, this is a disastrous decision, although investors rightly positioning themselves will do very well in the months ahead.head.

Jim Rogers Doubtful of QE3

Billionaire investor and commodity expert Jim Rogers says he's not convinced the Federal Reserve and Chairman Ben Bernanke will implement another round of quantitative easing, saying they would "look like fools again."

"QE1 failed, QE2 failed, so I'm not so sure they would announce QE3, because they'll look like fools again," said Rogers.

He already thinks that's the case with the introduction of the Draghi plan for Europe, which was ruled as being in line with the constitution of Germany Wednesday by its Federal Constitutional Court.

Rogers concluded:

"We're all going to pay a horrible price for this in a year or two or three," adding that it's only a tool that is "unanimity towards mutual destruction" by the West.

Although it's almost a surety that the Federal Reserve will implement QE3, the ruling that the European Stability Mechanism can be implemented in the euro zone does make it possible that Bernanke will wait until later in 2012, or maybe early 2013 before launching QE3.

If Europe hadn't acted, Bernanke would have been under even more pressure than he is to stimulate the economy, even though it has proven to be a waste of money.

Rogers is correct concerning the consequences of the actions of central banks around the world, which continue to go deeper into debt as countries raise their debt ceilings and spending to unsustainable levels.

Over time commodities will thrive in this atmosphere, as prices will rise if stimulus continues, and they'll also rise because little in the way of new production is being entered into by commodity-producing companies because of the slow economic growth.

It's a win/win for commodity investors either way. Rogers recommends looking for commodities that are trading lower for best results, as commodity prices in many segments have been soaring lately.

Mario Draghi Catches Shorts by Surprise

The assertion by ECB President Mario Draghi that he will do whatever is needed to save the euro had shorts scrambling to cover their positions.

After his comment, he ended the assertion concerning supporting the euro and what will be done by saying, "... believe me, it will be enough."

Many pros said his comments put a floor on the market.

It seems this is what traders and investors were looking for: more than just Ben Bernanke and the Federal Reserve pointing to intervening in the market with more stimulus.

The market's response shows it was looking for more support than the Federal Reserve, and now they've got it. If China visibly stimulates, it'll send the market soaring, the U.S. dollar plunging, and gold, silver, and other commodities much higher.

Of course this floor is one that can only last so long if measures aren't taken, as the market will then know it was either a general bluff, or something that won't be done until the situation reaches certain levels.

But with Greece surely going to exit the euro and Spain being bailed out, stimulus will surely come sooner than later.

That's the real story emerging over the last couple of days: what looked like a questionable possibility of QE3 in America and stimulus in Europe, now has ramped up to a very short-term window. That's what's moving the markets, not just the usual token statements that central banks stand ready to simulate if need be.

It appears the political pressure and weakening global economy has put the central banks on notice, and they are surely going to do something very soon.

And now with the comments of Draghi, it seems that it's not only immanent, but the size of the stimulus, at least in the case of Europe, appears to be gargantuan.

At least that's the corner Draghi has painted himself into. And anything less than something stupendous would now have a detrimental effect on the markets.

Whether or not all of this is political theater or not remains to be seen. But for now, it appears the plummeting stock market has been halted as traders await where central banks will go next.

If Bernanke and the Federal Reserve stimulate in the next several days at the next meeting, and Europe quickly follows, it would cause some huge upward moves in the market, and even hammer the shorts more than they are getting hammered now.

For gold and silver, they are going to soar as the U.S. dollar falls in value against the euro and other currencies, as will other commodities which are traded in U.S. dollars.

Commodity Surge doesn't support stimulus in any way, but it's going to happen, and we do need to be careful of how long the false supports will remain in place.

Most of us know throwing money at the problem hasn't and won't work, but we do like the predictability of the market immediately afterwards when unwarranted optimism gets investors all worked up and investing irrationally.

That will happen tentatively in the very short term, and when stimulus is announced, stocks and commodities will soar.

Now there is even more pressure on Bernanke and the Federal Reserve to stimulate quickly. If they don't, the effects of the Draghi announcement will quickly dissipate and his words forgotten.

That would in turn reverse the pressure and put it back on the ECB. Now that would make things interesting wouldn't it.

Either way, someone is going to stimulate soon, and whether it's the ECB or Federal Reserve first, it won't take long afterwards for the other to follow.

This is going to be a very interesting ride going forward, with conflicting data and results causing a lot of uncertainty and caution in the markets, while at the same time pushing investors to enter in.

Federal Reserve Audit Bill Overwhelmingly Passes in House

The U.S. House of Representatives easily passed a bill that the monetary policy of the Federal Reserve should be audited.

Republican representative Ron Paul was the author of the legislation, which passed the House by a vote of 327-98. A total of 238 Republicans approved of the measures while 89 Democrats approved.

Paul said this during the debate before the vote: "I don't know how anybody could be against transparency."

Ben Bernanke, Chairman of the Federal Reserve, has been fighting desperately to keep an audit of the Fed from happening. He has attempted to paint it as a disaster if the Fed were to have its independence compromised.

Paul is especially concerned about how Americans may be on the debt hook for the Fed's support of foreign central banks, as well as the details of the rescue of giant banks.

"They're sick and tired of what happened in the bailout and where the wealthy got bailed out and the poor lost their jobs and they lost their homes," said Paul.

Dennis Kucinich, a Democrat who has visibly supported auditing the Fed added, "It's time that we stood up to the Federal Reserve that right now acts like some kind of high, exalted priesthood, unaccountable to democracy."

What would happen if the bill were to pass the Senate would be for the Government Accountability Office to perform a complete review of the Fed. This office is a nonpartisan congressional agency.

The bill is expected to die in the Senate because of the unexplainable opposition of it by the Democrats. If the Senate is won back by the Republicans in the elections, it's a surety the bill will be brought back in some form for vote at that time.

Asset purchases held by the Fed have soared from $800 billion to $2.8 trillion since the economic crisis began.

Fed, Bernanke Ready to Stimulate

Even though Ben Bernanke is understating the eventuality of more stimulus for the economy, it's becoming apparent from his recent statements about the weakness of the U.S. economy that it is inevitable that the Federal Reserve will again pour money into the economy.

It's only a matter of when and by what means.

Some believe Bernanke may wait until the September meeting to see if there are any positive economic effects from the continuation of Operation Twist.

But with anemic jobs creation and continuing devastating unemployment, the question is whether the Fed has the nerves to wait another couple of months before taking action.

Action could be taken at the upcoming meeting from July 31 to August 1. If they don't and the economy falters, even more extraordinary pressure will be applied as the elections approach, especially for the hapless Obama and his administration, which has been totally ineffective in helping the economy along, and rather are making it worse by wanting to increase taxes rather than cut government spending.

It idea is if the Fed waits until September they'll have a better view of whether or not Operation Twist has done any good. I would be surprised if they do wait that long.

To me, the terrible American and global economy has called Bernanke's bluff, as growth numbers from key nations like China continue to move downward, confirming the precarious state of the global economy, which has such a detrimental impact on the U.S.

So Bernanke and the other Fed heads face growing pressure. If they fail to stimulate, the fallout will be enormous for them, even though over the long term it's a disaster.

But what makes me think stimulation is around the corner is former Fed officials who have been opposing more stimulus are starting to change their viewpoint, suggesting growing political pressure from the Democrats, who are afraid of getting slaughtered in the upcoming election, whether Obama gets reelected or not.

Also significant is the fact there is no real, sustainable economic growth in America which has signaled to the Fed that it is growing fast enough on its own.

In their view that's a disaster, and pushes them towards another round of easing, whatever the mechanism for doing it will be.

I think the Fed is growing closer to stimulating, and it would be surprising if it isn't done within a week. If not, the markets will remain in turmoil because of the uncertainty surrounding whether or not there will be a stimulus.

With everything pointing towards it, I can't see what reason the Fed could give for waiting, in light of the risk of not doing it now.

Next week will be enormous heading into August.