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Tea Party, Bond Vigilantes, Revolt against Fed’s QE-2 plotGary Dorsch “Oh what a tangled web we weave when first we practice to deceive,” said Sir Walter Scott. The Republican Party enjoyed a major victory in the congressional midterm elections, winning back control of the House of Representatives and gaining seats in the Senate. Republican leaders are giving the Tea Party movement a lot of credit for their success, and one of its high profile leaders, Kentucky’s Senator-elect, Rand Paul declared, “We’ve come to take our government back.” The Tea Party is a grassroots, conservative, and libertarian movement dedicated to reducing the power of Washington DC’s politicians in the lives of ordinary Americans. Tea Party supporters view the nations’ $14-trillion debt as the biggest danger facing the economy. The US federal budget has gone from a surplus of $236-billion the year President George Bush took office to a $1.5-trillion deficit during President Barack Obama’s first year. The Tea Party’s revulsion against the spending binge in Washington has hit a chord with the American public. Also, the hostility toward the Federal Reserve is very strong among the followers of the Tea Party, with 55%of its supporters demanding that the Fed should be abolished or radically overhauled. The Tea Party aims to audit the Fed’s secret operations, and wants to break the link between the Fed and a small group of Wall Street Oligarchs that are making lots of money at the expense of US-taxpayers. “I think that private individuals are making money with the transactions that the Fed is involved with, and US-taxpayers deserve to know, if someone is making hundreds of million dollars buying and selling these new US-assets. We also need to know who they are, and what are they paying for these assets, and if this being done honestly,” said Kentucky’s next Senator Rand Paul.
Randall Paul opposes the Fed’s control of the money supply and interest rates, and instead, wants the free market to set interest rates. Additionally, Paul supports “restoring the value of the US-dollar that has devalued by 95% since the Fed’s inception in 1913.” Another Tea Party favorite, Sarah Palin, former Alaska governor, has accused the Fed of conducting “dangerous experiments with our currency.” In an extraordinary turn of events, the Fed’s scheme to devalue the US-dollar, and monetize the government’s debts, through a radical process known as QE-2, has become a political lightning rod, pitting liberal Democrats and supporters of QE-2, against conservative Republicans and Tea Party opponents of QE-2. In the battle for public opinion, President Barack Obama has sided with the clandestine group of bankers, who control the Fed. And while the Fed justifies QE-2 in the name of stimulating job creation, its main aim is to increase the supply of virtually free credit to the Wall Street Oligarchs and fuel bubbles in the stock market. During a visit to India on Nov 10th, Obama argued that QE-2 is in the world’s best interests. “I will say that the Fed’s mandate, my mandate, is to grow our economy. And that’s not just good for the United States, that’s good for the world as a whole. And the worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth,” Obama argued. But left out from Obama’s remarks was the Fed’s mandate to control inflation. Tea Party favorite Sarah Palin weighed in the debate over the Fed’s QE-2-scheme, calling upon Fed chief Ben Bernanke to “cease and desist” from his suicidal addiction to printing money. “We shouldn’t be playing around with inflation. We don’t want temporary, artificial economic growth bought at the expense of permanently higher inflation which will erode the value of our incomes and our savings. We want a stable dollar combined with real economic reform. It’s the only way we can get our economy back on the right track,” Palin said. Palin went on to say, “What’s the end game here? Where will all this money printing on an unprecedented scale take us? Do we have any guarantees that QE-2 won’t be followed by QE-3, QE-4, and QE-5, until eventually, - inevitably, - no one will want to buy our debt anymore?” Palin asked. However, the unelected officials, who were appointed to the Bernanke Fed aren’t listening. They have a hidden agenda.
The Fed first began telegraphing its intention to unleash QE-2 upon the world money markets, at its annual conference in Jackson Hole, Wyoming, on August 28th. In the background, the Dow Jones Industrials had just tumbled below the psychological 10,000-level, after falling 700-points over the previous three weeks. The stock market was beset by fears of a “double-dip” recession, and a “deflationary spiral.” The US economy’s growth rate slowed to an annual pace of +1.6%, and less than half the +3.7% rate in the previous quarter. The U-6 jobless rate, measuring unemployed, discouraged, or involuntarily part-time workers rose to 25-million, or 16.5% of the labor force, or one in six Americans. In order to arrest the slide in the stock market, Fed chief Bernanke signaled that the central bank was ready to cross the Rubicon into the world of QE-2. “The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do! Should further action prove necessary, policy options are available. The Fed will strongly resist deviations from price stability in the downward direction,” he told a gathering of central bankers and economists. Bernanke’s suggestion that QE-2 was necessary to stave off a “double-dip” recession roiled world currency markets, sending the US-dollar sharply lower against the Euro, the yen, and emerging currencies, and propelling gold to record highs. New York Fed chief William Dudley, explained to the media on October 1st, that printing $500-billion under the guise of QE-2, would be the equivalent of the Fed lowering the federal funds rate, by a half-percent. In other words, the Fed aims to drive the fed funds rate below zero-percent for the first time in history. The Fed’s QE-2 scheme is portrayed by its propaganda artists, as an insurance policy against the possibility of a “deflationary spiral.” Yet in fact, the prospect of QE-2 set in motion a buying frenzy into a broad array of commodities and precious metals. The Continuous Commodity Index (CCI) climbed +23% higher in just ten-weeks, elevating to within 5% of its all-time highs. However, the Bernanke Fed doesn’t interpret booming commodity markets as harbinger of accelerating inflation. In fact, food and energy prices aren’t even included in the Fed’s preferred model of the consumer price index. Instead, the Fed blames booming commodity prices on voracious demand by rapidly growing nations, such as China and India, and will never admit that its cheap US-dollar policy is fueling global inflation. Above all else, the Fed is determined to insure the massive flow of cheap credit to the Wall Street Oligarchs, which are recording bumper profits of $19-billion this year, the fourth highest total ever, helped by the Fed’s efforts to jig stock prices higher.
So far, the biggest casualty of the Fed’s QE-2 scheme is the Treasury’s 30-year bond. Its yield has zoomed 100-basis points higher since late August, to as high as 4.42% this week. Long bonds were priced for the probability of a “double-dip” recession and a “deflationary spiral.” Instead, the Fed’s shift to QE-2 has whipped up fears of accelerating inflation, and has stirred the animal spirits among traders to bid-up commodities and precious metals. The Fed’s QE-2 scheme, “introduces significant uncertainty regarding the future strength of the US-dollar and could result both in hard-to-control, long-term inflation and potentially generate artificial asset bubbles that could cause further economic disruptions,” Republican leaders of the House and Senate wrote on Nov 17th. Economists at the St Louis Fed figure that for every $100-billion pumped into the Treasury market under the Fed’s QE-2 operations, it would lower the yield on the US T-Note by 10-basis points. However, such fanciful calculations have gone awry. Trying to push T-bond yields lower, while trying to generate faster inflation at the same time, is like trying to submerge a helium filled balloon under water. Instead, 10-year T-Note yields jumped 40-bps higher. The yield spread between 30-year and 10-year bond widened to a record high of +160-basis points. In other words, QE-2 has boomeranged, and is leading to sharply higher bond yields. “Simply running the printing presses in order to pay-off your debts is no way for a great nation to behave,” warns Ms Palin. Indeed, another way to understand the hidden meaning of QE-2 is that the market’s worst fears are being realized – the US-government is essentially bankrupt, and can no longer service its debt, by running a balanced budget. Instead, the only thing standing in the way of an outright default by the US-government on its debts, - is the Fed’s electronic printing press. Still, China and Japan were net buyers of $43-billion of US T-Notes in September, - and so, the shell game goes on awhile longer. To read the rest of this article, please click on the hyperlink below: http://sirchartsalot.com/article.php?id=148 ### Nov 17, 2010 321gold Ltd |
