Global Quantitative Easing

Posted 08 Apr 2009

Quantitative easing appears to be the new fad among central bankers including the Bank of England, Japan, Switzerland and the Federal Reserve.  Quantitative easing is a tool of monetary policy.  The effect is an increase in the quantity of currency without regard to maintaining its quality.  This has an effect on quantitative finance.


Bloomberg has reported that the Bank of Canada Governor "Carney has pledged to lay out a plan that would flood banks with cash to halt the hoarding of capital and expand lending."  Consequently, the Loonie has been sliding against gold.


Out of the G-20 meeting came the joint cooperation for global quantitative easing.  Here are a few key points:  "To treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs (multilateral development banks), to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries."

This creation of an additional $250B of SDR illusions to form the foundational capital for lending will only hasten the evaporation of the current system because the SDR has only limited liquidity and no intrinsic value. 

 This is classic inflation by increasing the illusion supply.  Because the SDR is a composite asset, a basket composed of the FRN$, Euros, Pounds and Yen, the effect is simply more chicanery of no economic substance.  The IMF gold sales will be like a single piece of sushi appetizer to a starving dragon. The market's reaction will be:  "That was nice.  Seconds please."   But who will these measures help?


Bloomberg has reported that the Single Digit Midget Bank of America, with a market capitalization of $45B, needs $36.6B in capital to bring it in line with peers.  

If Bank of America cannot use the new FASB mark-to-market changes as creatively as its peers that enable fair-value lying to poof an extra $36.6B of fake capital onto its balance sheet then it must have serious intrinsic problems.  There are places for worthless corporations like these:  bankruptcy court.

How many other worthless, or worse than worthless, banks are having trouble conjuring capital onto their balance sheets?  How long will it take other banks like Wells Fargo, US Bancorp or Credit Suisse Group with their approximately $14.90, $14.40 and $31.40 share price respectively and below $63B, $25B and $36.5B market cap to report earnings?  The Treasury is delaying the reporting of the results of the federal report stress tests until Q1 earnings have been reported.  Hopefully it shows up on Wikileaks like a recent whistleblower leak about JP Morgan's insider trading program.

While fair-value lying may help the stock prices in the short term; the fundamentals are horrific for value investors.  Most likely the longer the information is delayed and the less details the Treasury provides then the worse the true results are regardless of the faux official numbers.

The new FASB changes may enable profitability for a quarter, or even a few, but those profits are bogus.  What purpose do these FASB changes and bailouts serve?  To funnel bailout money through AIG to Goldman Sachs, JP Morgan, and European banks like Deutsche Bank.  After all, Deutsche Bank, assisted by the ECB, has most likely been extremely helpful in perpetuating the gold price suppression scheme.

Why else would the ECB sell 35M ounces of gold the exact same day Deutsche Bank had to deliver 850,000 ounces of gold or risk a failure-to-deliver on the COMEX (Part 1 and Part 2)?

 The gold and silver markets, along with their shadow of the interest-rate market, are enveloped by the thickest part of the derivative illusion.  As securities attorney Avery Goodman observed, "But, simply put, you cannot legitimately or legally hedge against another hedge, which is what the derivatives dealers appear to be doing, and which CFTC seems to be allowing them to do."

The sociopaths manipulating interest rates, which according to Austrian business cycle theory regulate production over time, has caused and will yet cause catastrophic damage to the world economy and result in tremendous human suffering.


The world already has a world reserve currency of last resort:  gold.  Gold has a definition under the periodic table and is not the same as paper gold, derivative gold, problematic ETF GLD gold, or other forms of fools gold.

 Unlike SDRs and other illusions like the FRN$, Euro, Pound, Yen, etc. gold is a tangible asset, no-one's liability and not subject to counter-party risk.

The next round of derivative shocks may come from a bankruptcy of the condemned General Motors triggering massive credit default swap payments.  This will likely be a very stressful event for the banks and may result in tremendous solvency pressure.

Investors are becoming increasingly aware of risk and as the system continues evaporating the importance of seeking the safest and most liquid assets, with physical gold and silver at the tip, becomes increasingly desirable.  While the price of gold and silver fluctuates their value does not and both gold and silver will still be there for the next credit expansion.

 That assertion cannot be made for the Z$, Bear Stearns or GM stock, money market accounts, the SDR or FRN$ and other places where capital was or is allocated.  Carney and his fellow miscreants will not succeed in trying to force capital up the liquidity pyramid because the great credit contraction has begun.

Disclosures:  Long physical gold and silver with no position in WFC, BAC, C, USB, GM, GLD, SLV, GS, JPM and CS.