Last week former FOMC Vice Chairman Alan Blinder gave a speech in which he said that more monetary stimulus would be needed in order to improve the employment situation in this country. Blinder happens to be a senior economics professor at Princeton, where what’s-his-name, the current FOMC chief was departmant chairman. Some analysts from Wall Street are also now starting to entertain the idea that we need more money printing in order to fund Government spending. We know that the Obama people are begging for a $2 trillion increase in the debt limit, which will supposedly last until November 2012. Anyone believe that? The bigger question in my mind is, even with higher interest rates, who is going to fund all of that Government new issuance?
We found out today that China reduced its holdings in U.S. Treasuries for the fifth month in a row. And we know that since QE2 started, the Fed has actually been monetizing close to 100% of the Treasury auctions. So if China is reducing its holdings, thereby requiring even more funds needed to buy both China’s and Geithner’s bonds, if the Fed stops printing who will step in with the necessary funds?
For more proof that the economy is losing any steam it had from QE1 and 2, just take a quick look at today’s economic reports. The NY State manufacturing index drop sharply and came in a lot lower than the mean consesus forecast LINK. The homebuilder sentiment index showed no improvement in May LINK and from what I’ve been reading, housing market conditions across the country are headed south again:
A decline for the U.S. property market is accelerating. It could fall another 20% over the next 12 months LINK
Here’s another commentary that sees the likelihood of more QE3: LINK In fact, I would argue that part of the agenda with this latest attack on gold and silver is an effort by the Fed to get the price of gold and silver to much lower levels before apologetically rollling out QE3 in some form. If the metals are hitting new records everyday, it makes it harder to intellectually justify more QE. But if gold and silver are retreating in price, the Fed can patronize us with its “inflation is not a problem and is transitory” rhetoric. If you don’t think gold and silver are being manipulated, then explain to me why all of a sudden a lot futures sellers show up after the London PM fix, when the physical market closes and then again after 1:30 p.m. NY time, after the Comex closes. If you were a futures trader and wanted to unload your long positions, wouldn’t you try to do it when the market is at its most liquid and you’ll have much better odds of getting paid a higher price than if you dump your paper in the afternoon when no one is around, which is essentially what has been occurring for two weeks now?
As every one now knows, the Treasury is going over its debt limit today and will be tapping into Federal pension plans in order to fund operations. You can see where this is headed: eventually the Federal pension plans will be used to fund Government operations, like State pension funds are being used now in most States. At some point, in the spirit of being fair, the Government will impose its will on the private pension/IRA system and convert the entire retirment system into one large Treasury funded operation managed by Wall Street. In exchange, everyone with retirement funds, public and private, will receive a “guaranteed” annuity payment when they retire. I have been warning anyone willing to listen that this is where this country is eventually headed (much the same way I warned about housing back in 2002). Would you rather pay a 10% penalty and take what you can out of your retirement plans and control your own financial destiny or take your chances and face increasing odds that an increasingly all-powerful Government will eventually take what’s yours, like it is doing in many other facets of our lives?