While Obama is busy distancing himself from Bernanke and preparing to give the Fed Chairman the boot and bring in likely Yellen, Dudley, Summers, or Turbo Timmy, legendary gold trader Jim Sinclair states that it is QE to Infinity or Infamy for Bernanke.
Ahead of today’s much anticipated FOMC statement, with rumors of Fed “taper” swirling, is Bernanke and the Fed ready for what is sure to come should the market be convinced the Fed will actually taper down QE?
From Jim Sinclair:
A lesson on what interest rates are:
1. Interest rates are the price of federal paper in the federal paper bond market for all the various common periods of time.
2. Interest rates rise if the price of binds fall in the Federal bond market.
3. Interest rates fall if the price of Federal paper rises in the Federal bond market.
That is the total definition.
QE is the act of the Federal Reserve or any similar central banks making bids in the Federal bond market.
If the Fed wishes it can bid forever at any price to keep interest rates low but the unintended consequence is pressure on the US dollar or currency of the country doing QE.
QE is in fact debt monetization but central banks do not want to call it that because the historical and traditional understanding of debt monetization is and will in time be as follows:
Monetization
From Wikipedia, the free encyclopedia
Monetization is the process of converting or establishing something into legal tender. It usually refers to the coining of currency or the printing of banknotes by central banks. Things such as gold, diamonds and emeralds generally do have intrinsic value based on their rarity or quality and thus provide a premium not associated with fiat currency unless that currency is “promissory”: That is the currency promises to deliver a given amount of a recognized commodity of a universally (globally) agreed to rarity and value, providing the currency with the foundation of legitimacy or value. Though rarely the case with paper currency, even intrinsically relatively worthless items or commodities can be made into money, so long as they are difficult to make or acquire. Monetization may also refer to exchanging securities for currency, selling a possession, charging for something that used to be free or making money on goods or services that were previously unprofitable.
Monetizing debt
In many countries the government has assigned exclusive power to issue or print its national currency to a central bank. The government treasury must pay off government debt either with money it already holds or by financing it by issuing new bonds which are sold to either the public directly or the central bank, in order to raise the funds required to repay bonds that have come due. The central bank may purchase government bonds by conducting an open market purchase, i.e. by increasing the monetary base through the money creation process. If government bonds that have come due are held by the central bank, the central bank will return any funds paid to it back to the treasury. Thus, the treasury may ‘borrow’ money without needing to repay it. This process of financing government spending is called ‘monetizing the debt’.[1]
Central banks are usually forbidden by law from purchasing debt directly from the government. For example, the Maastricht Treaty(article 104) expressly forbids EU central banks’ direct purchase of debt of EU public bodies such as national governments. Their debt purchases have to be from the secondary markets. Monetizing debt is thus a two-step process where the government issues debt to finance its spending and the central bank purchases the debt, holding it till it comes due, and leaving the system with an increased supply of money.
More…
Bond Bubble Threatens Global Financial System: Bank Of England’s Andy Haldane Warns
By Satya Nagendra Padala | June 13 2013 2:24 AM
Andy Haldane, a senior Bank of England, or BOE, official on Wednesday, warned that the bond market was caught up in the biggest bubble in history, posing a serious threat to the stability of the global financial system.
Across the Atlantic, the United Kingdom also houses 22 of the world’s fastest growing companies, and is next on IBT1000. Bolstered by the world’s historically most valuable currency – the British Pound – the UK has Europe’s third largest economy behind Germany and France. As the cradle of the Industrial Revolution, the UK boasts large hydrocarbon resources including coal and oil, and has a highly mechanized agricultural base. The country, much like the United States has developed a large service and financial sector, but does produce large amounts of electric power equipment, motor vehicles, electronics and communication equipment and petroleum. The global financial crisis of 2008 hit the island kingdom particularly hard as its financial institutions are tied to global markets. Since then, the country’s financial health has seesawed as European debt fears keep global stocks on a volatile rollercoaster. The UK in recent years could also face an increasing level of diplomatic isolation, however, as Germany and France take the lead in reigning in the Euro zone’s debt problems.
More…
Source
Ahead of today’s much anticipated FOMC statement, with rumors of Fed “taper” swirling, is Bernanke and the Fed ready for what is sure to come should the market be convinced the Fed will actually taper down QE?
From Jim Sinclair:
A lesson on what interest rates are:
1. Interest rates are the price of federal paper in the federal paper bond market for all the various common periods of time.
2. Interest rates rise if the price of binds fall in the Federal bond market.
3. Interest rates fall if the price of Federal paper rises in the Federal bond market.
That is the total definition.
QE is the act of the Federal Reserve or any similar central banks making bids in the Federal bond market.
If the Fed wishes it can bid forever at any price to keep interest rates low but the unintended consequence is pressure on the US dollar or currency of the country doing QE.
QE is in fact debt monetization but central banks do not want to call it that because the historical and traditional understanding of debt monetization is and will in time be as follows:
Monetization
From Wikipedia, the free encyclopedia
Monetization is the process of converting or establishing something into legal tender. It usually refers to the coining of currency or the printing of banknotes by central banks. Things such as gold, diamonds and emeralds generally do have intrinsic value based on their rarity or quality and thus provide a premium not associated with fiat currency unless that currency is “promissory”: That is the currency promises to deliver a given amount of a recognized commodity of a universally (globally) agreed to rarity and value, providing the currency with the foundation of legitimacy or value. Though rarely the case with paper currency, even intrinsically relatively worthless items or commodities can be made into money, so long as they are difficult to make or acquire. Monetization may also refer to exchanging securities for currency, selling a possession, charging for something that used to be free or making money on goods or services that were previously unprofitable.
Monetizing debt
In many countries the government has assigned exclusive power to issue or print its national currency to a central bank. The government treasury must pay off government debt either with money it already holds or by financing it by issuing new bonds which are sold to either the public directly or the central bank, in order to raise the funds required to repay bonds that have come due. The central bank may purchase government bonds by conducting an open market purchase, i.e. by increasing the monetary base through the money creation process. If government bonds that have come due are held by the central bank, the central bank will return any funds paid to it back to the treasury. Thus, the treasury may ‘borrow’ money without needing to repay it. This process of financing government spending is called ‘monetizing the debt’.[1]
Central banks are usually forbidden by law from purchasing debt directly from the government. For example, the Maastricht Treaty(article 104) expressly forbids EU central banks’ direct purchase of debt of EU public bodies such as national governments. Their debt purchases have to be from the secondary markets. Monetizing debt is thus a two-step process where the government issues debt to finance its spending and the central bank purchases the debt, holding it till it comes due, and leaving the system with an increased supply of money.
More…
Bond Bubble Threatens Global Financial System: Bank Of England’s Andy Haldane Warns
By Satya Nagendra Padala | June 13 2013 2:24 AM
Andy Haldane, a senior Bank of England, or BOE, official on Wednesday, warned that the bond market was caught up in the biggest bubble in history, posing a serious threat to the stability of the global financial system.
Across the Atlantic, the United Kingdom also houses 22 of the world’s fastest growing companies, and is next on IBT1000. Bolstered by the world’s historically most valuable currency – the British Pound – the UK has Europe’s third largest economy behind Germany and France. As the cradle of the Industrial Revolution, the UK boasts large hydrocarbon resources including coal and oil, and has a highly mechanized agricultural base. The country, much like the United States has developed a large service and financial sector, but does produce large amounts of electric power equipment, motor vehicles, electronics and communication equipment and petroleum. The global financial crisis of 2008 hit the island kingdom particularly hard as its financial institutions are tied to global markets. Since then, the country’s financial health has seesawed as European debt fears keep global stocks on a volatile rollercoaster. The UK in recent years could also face an increasing level of diplomatic isolation, however, as Germany and France take the lead in reigning in the Euro zone’s debt problems.
More…
Source