The Dubious Monetizing Efforts Of The Fed

Posted: August 15 2009 The International Forecaster
Fed plans to monetize and cause inflation, Writing off debt no easy task, the big institutions should have been allowed to fail, unemployment and other metrics to move only sideways, trade friction between US and China,
The 10-year note auction yielded 3.73%. The bid to cover was 2.49 to 1 versus the average of the last ten auctions of 2.48 to 1. Indirect participation was 45.7% versus an average of 30%; we believe this is because foreign central banks are buying in behalf of the Fed via money they swapped with them.
As we discussed previously we expect this second half of 2009 to improve slightly. 2010 should pick up more about mid-year. We believe second quarter GDP figures were not minus 1.5%, but closer to minus 4%. We see real GDP at even by the end of the year and into the first half of the year with a plus 2% in the second half of 2010. If another stimulus package of $2 trillion is not passed and banks continue to reduce lending, the economy will begin to slide again. Our guess is if the stimulus package is not increased the Fed will instruct the banks to increase lending, which will monetize money and start higher inflation. It is really a tragedy for the American people and particularly business interest to have to deal with bogus government figures and continued lies. If neither events occur then the economy will resume degeneration and that will force the Fed to further monetize fund injections into the economy to avoid being overwhelmed by deflation. If economic and financial stability is to be maintained over the next ten years trillions of dollars will have to be injected and monetized into the economy and no lasting growth will be achieved.
In the meantime de-leveraging will have to be dealt with, especially among the banks and Wall Street; coupled with their terrible losses on their balance sheets. This will be a mean feat. As this transpires we will experience chronically rising unemployment. No economy can intrinsically grow under such conditions and it can only end in stagflation indefinitely. As we move along over the next five years people will finally discover that free trade, globalization, offshoring and outsourcing have robbed them of their once vibrant economy. The public will finally demand tariffs on goods and services in order to save what is left of their economic structure. In time world economic weakness will be reflected in commodity prices, which will slowly retreat. All of the above will advance government intrusion into the economy via regulation, as consolidation of monopolizations takes place. This will lead to increased corporatist fascism and America will slip deeper into socialism.
It will take three more years for residential real estate to bottom out and then we’ll have seven to 20 years of bumping along the bottom. That is if the derivative market and the financial system don’t implode. The fall in housing, the market and bonds will pauperize many who do not hide in gold and silver related assets. For those who survive net worth will have been decimated. As we have said previously things will be like they were in the 1950s and 60s.
All those who see recovery are the same group that saw recovery 1-1/2 years ago. It is just more propaganda and misdirection. Even if a recovery took place it would barely take growth to more than even and it would take years to recover. Writing off debt will be no easy task.
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