To QE III Or Not To QE III, That Is The Question?

After a roiling roller coaster week of financial turmoil, we end the

week just about where we started in all of the major indices. Gold staged

quite a run, reaching $ 1,800.00 and ounce before receding on profit taking

and weak hands jumping out of the market as the CME raised margins on

gold. 

What happened this week?  Why was there so much turmoil in the

financial markets? Well you can start with the banking problems in Europe.

Italy's banks, especially UniCredit, are teetering on the brink of Failure.

This is the same story in Spain. When you add the technical default by 

Greece, Irelands and Portugal's woes you have a shaky Euroland. 

American banks are interconnected with their European cousins and will fall
if Europe falls. So it is very shaky out there. Beyond this, my perspective is
that the market is broken. It is teetering on the brink of failure and the
financial markets reflect this fact. There is so much fraud and thievery in the
markets from manipulation of front running computer trading algorithms to
naked shorting in the gold and silver markets, to banks not marking their
assets to market that the average investor has no chance to beat the big
boys pulling the strings and is going to get fleeced. If you don't have inside
information, you are always going to get beaten. There aren't a lot of easy
profits in a calm market, but in a volatile market a lot of money can be
made,and I think we saw some of that used in a panic ploy this week. For
the markets to reverse turning negative to positive as they did so quickly
also speaks of government involvement to prop up the markets. The mantra
is never waste a good crisis!  This may also be read as the beginning
of QE III. 

Late Tuesday the Fed announced that they were going to hold interest rates
at zero for the next two years. This was seen by Wall Street as the Fed
backstopping the markets, offering cheap, easy money for the big banks and
speculators to keep pumping out free profits and big bonuses. This is the Fed
sweeping our broken financial system under the rug. And the market responded
because the Fed,  holding interest rates low means that the stock market will
be a better bet than the bond market, because bonds will return less money in
a low interest environment. Many analyst's have noted that the Feds statement
on Tuesday suggests that it might  take further steps to stimulate the economy
in the future. Or, hint, hint..... QE III.

So here we are pre-depression, muddling in a recession. Yes, we are in a recession, regardless of what the MSM tells you, there is NO Recovery, America is struggling. How do you know we are in a recession?  22% unemployment, if you use the governments methodology from U6 Unemployment calculations and the SGS Alternative Unemployment Rate that were phased out in the Clinton years. This gives a much better picture of employment in this country. Doesn't look good to show the underemployed or discouraged unemployed, who disappear off the books after a year of looking for a job. The government drops these numbers from its official estimate and thus can offer a better looking unemployment number around 10%. How about 46 million American now receiving food stamps? An unbelievable number of Americans -1 in six - are receiving government food stamps. Cities and states are facing extreme budget shortfalls and bankruptcy. One only has to look to Central Falls, Rhode Island or to California. Central Falls is facing bankruptcy amid manufacturing job losses and raising costs of government. They are facing a 50% reduction in pensions paid to city workers, firemen and police, and are considering consolidations with the neighboring city of Pawtucket or Cumberland. California, 3000 miles from Rhode Island, but with bigger problems, built a state budget hoping for an economic recovery and a  4 billion dollar fantasy wind fall to fill their budget gap, is seeing their pie in the sky projections failing as July 2011 tax revenues missed expectations by $ 538 billion.That is 12.5% of the total money they were betting on to fill the budget gap and this comes only 2 months after reaching a budget for the new fiscal year!!! 10 more months to go in their fiscal year. This really looks bad California.

Which brings us back to QE III. I believe QE III is coming because of the causes I mentioned above and the total lack of leadership from our President and Congress. One only has to look back to last weeks theatrical "Debt Ceiling" shenanigans to see what Washington can accomplish and the American publics total loss of faith in them.

The Fed doesn't have much else to work with, so by leaving interest rates low, they are signaling to the stock market that they will inflate as much as they can to bring about a change in the economy. QE III is coming because the Fed will throw mountains of cash at banks and Wall Street hoping that that cash will stimulate the economy. It won't work, but it will cause incredible inflation, especially in food and energy costs. Why do they keep going to the well when it doesn't work? A short history of recent Fed stimulus. They started with the original TARP give a-ways, and giving money to AIG, the Auto Industry, $ 540 Billion to backstop money market funds in '08, Obama's Stimulus of $ 787 billion stimulus in Jan. '09, QE Lite in August of '10 and QE II in November of 2010. None of this stimulus has helped get the economy going again. Why doesn't this work? Simple. It hasn't created new industry and new jobs. Banks have a lot of capital but are afraid to loan this capital to small businesses. That is why a lot of people in the banking industry and on Wall Street are calling for QE III. They will make gobs of money and get great bonuses from QE III, but most of us won't. 

Many people believe, myself included, that QE in any form doesn't work and is a well documented failure, however, that won't stop Mr. Bernanke from dropping money from helicopters if he has to make his case and bend the economy to his will.  Or so he hopes.

Past experience shows us this stimulus will not work. It will create a hyperinflation that might rival the Weimar Republic or todays Zimbabwe.  Don't let yourself get caught in this inflation eddy. Take action now that will protect you and your family from this coming financial debacle.