by Nick Sorrentino

September 16, 2012
from AgainstCronyCapitalism Website

 

 

In the below attached article at SeekingAlpha Monty Agarwal correctly explains that the FEDís all out effort to generate inflation (though the Bernanke doesnít quite put it like that) will hurt everyday people.

 

Marc Faber said the same thing in an interview on Friday:

 

 

 

 

 

 

 

 

The open ended QE of the FED announced on Thursday, coupled with the new efforts of the ECB announced the week before that, combined with a likely future move by the Bank of China will benefit the rich (in relative terms to their more impoverished brethren,) while hammering the poor and middle class.

Old prudent middle class people who saved their entire lives used to live off of CD yields. Now? No chance Lance.

 

Agarwal also predicts that the actions of the FED (and the ECB) will induce money currently on the sidelines into the game, which will move markets and prices for commodities, up.

 

 

From Seeking Alpha

ďThis new move by the FED is unleashing massive amounts of money into the risk assets. Markets will now believe that, between the ECB and the FED, all tail risks to the markets have gone.

 

In other words, this could mean that all the money that was hiding in the safety of U.S. Treasuries will now leave the Treasury markets and flow into equities and commodities.Ē

 

$5/gallon gas might indeed happen soon, along with $5/gallon milk. Who knows where bread, eggs, coffee, and other staples will go?

 

Will wages rise along with the cost of living? For some they might. For many they will not.

 

Those who will see their relative wages decline are people are likely to be the poorest in society already, and Iím not just talking about people in the United States who at least for the time being have access to food stamps.

 

No, I am talking about the billions more, truly impoverished people throughout much of the developing world. In some places if the price of rice goes up too much, people die.

 

Think about that. For the sake of keeping this system limping along until some kind of bitter end the Federal Reserve is perfectly happy with pricing some people out of the market for food.

 

Still, many will argue, if the FED didnít go bananas printing it would be much worse. We need to prime the pump until the economy comes back.

 

I am asking right now if there is anyone out there who honestly believes that the FED actions will restore the economy? Anyone? Clearly there must be some folks because no one in Washington has wrestled the steering wheel away from Bernanke yet.

 

 

 

 

 

 

 

 



FED Up - Bernanke Declares War On The Poor
by Monty Agarwal
September 14, 2012
from SeekingAlpha Website

 


This week, we saw both the European Central Bank (ECB) and the Federal Reserve deliver massive amounts of stimulus to the markets.

The ECB is now backed by the 500 billion euro European Stability Mechanism facility, which has been ratified by the German parliament. This is a game-changer for Europe, as now it is finally moving toward a federalist system, similar to the one in the United States.

 

This measure has been successful in bringing down the bond yields for Spain, Italy and Ireland to a very manageable level. And it is likely that those central banks might not even need to tap the ESM.

The big surprise this week, however, came from the Federal Reserve.

The FED has decided to go all-out in fueling the next massive asset bubbles through its QE3 bazooka. The FED announced plans to buy $40 billion worth of mortgage securities per month on an open-ended basis, while continuing to reinvest its income from the securities purchased during QE1 and QE2.

The following statement from the FED shows its clear intent to support its mandate of full employment.

 

But I fail to see how it will manage to do that "in the context of price stability" while creating asset price inflation through unabashed QE programs.

If the outlook for the labor market does not improve substantially, the Committee will continue its purchases 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.

This new move by the FED is unleashing massive amounts of money into the risk assets. Markets will now believe that, between the ECB and the FED, all tail risks to the markets have gone.

In other words, this could mean that all the money that was hiding in the safety of U.S. Treasuries will now leave the Treasury markets and flow into equities and commodities.

If so, I would not be surprised to see a parabolic move into year-end in both gold and equities that could take the S&P 500 to 1,650 and gold to $2,000 per troy ounce by year-end.

Now here is the dangerous side to this equation. This rally will also lead oil and grains to new highs, which will results in higher gas prices at the pump and food prices at the grocery store. While employment and wages are still low, this will hurt the working class.

This massive and irresponsible FED stimulus package by Ben Bernanke & Co. will make the rich richer by fueling their asset portfolios and bringing loads of misery to the poor, who will find it harder to make ends meet.

Besides the poor, this latest move also declares war on the retirees or those who subsist on fixed income returns from bonds. With the Fed's monetary policy stuck at zero for another three years at least and more Federal money creating artificial demand for fixed income assets, yields will not rise for quite a while.

 

This means that the coupons on newly issued government and agency bonds will be stuck at below inflation rates.

Another debilitating aspect of the latest round of QE is that by removing coupon generating bonds from the monetary system, it reduces the amount of money in the economy, thus reducing aggregate demand.

In summary, QE will reduce net savings of U.S. dollar holders and increase paper wealth in terms of higher equity market valuations.

While the initial reaction of the markets has been to sell the U.S. dollar, fewer U.S. dollars as a result of QE will result in the dollar eventually rallying hard, especially against the EUR. My target will be around 1.3500 before EUR/USD starts heading back down towards parity.