On Thursday, September 13 2012, we’ve witnessed what I believe to be the beginning of the end, of our existing monetary system.
For those who haven’t heard about it, I’m referring to the Federal Reserve’s announcement to continuously print U.S. Dollars, starting with $40 billion each month with no end in sight.
This is game-changer that will dramatically change the quality of our lives in the coming years, both within and outside of the United States.
Why Is This Important News?
Viewed on its own, this development may seem like just another one of the many attempts of the Fed to stimulate the U.S. economy.
But when viewed in context of everything else that has happened in the past 3 years, it’s likely that the world economy has begun its final countdown to disaster.
This is a bold statement, I know.
But I’d like you to consider holding back your judgement until you see the facts I’m about to show you.
“Nahh… it can’t be that bad…”
Actually, it might be worse than you think.
This announcement by the World’s most influential organization signals two things:
- The Federal Reserve is out of ideas to solve the dismal employment situation, and is desperate
- The Federal Reserve is no longer concerned about keeping inflation low
Let’s take a closer look at these issues.
1. Fed is out of ideas to solve the job crisis, and is desperate
To truly understand what’s happening here, we’ll have to look at the current situation in the context of what happened in the past.
Here are the dates and amounts of the Fed’s previous attempts at quantitative easing:
Dec ’08: $600 billion
Mar ’09: Additional $750 billion + $300 billion Treasuries
Nov ’10 to Jun ’11: $600 billion, at a rate of $75 billion per month
Sep ’11 – Buy $400 billion long term bonds, funded by selling short term bonds
Jun ’12 – Extension by another $267 billion
Is the economy getting better?
Let’s take a look at how the U.S. economy is doing, since the introduction of QE1.
Productivity & Trade
(higher is better)
(higher is better)
(lower is better)
Can you see a pattern here?
After the ’08 financial crisis, QE1 (for the most part) provided a short term boost to productivity and employment numbers. The Fed must have had been proud of themselves.
But after the end of QE1, we see the economy going flat or dipping again.
This was big news, because it told us something.
It told us that the U.S. economy was relying solely on the money that the Fed threw into the economy. Without that artificially-injected money, the economy wasn’t growing on its own.
This is key because it means that the economy isn’t fundamentally productive – there is only the illusion of growth because the Fed is propping it up by printing large amounts of money and dumping it in.
The Party Ends
Seeing how the economy couldn’t sustain itself without them throwing more money at it, the Fed decided to start another party, this time with QE2.
But alas, this time nobody came to the party.
Despite dumping another $600 billion into the U.S. economy, it remained stagnant.
So where did all that extra money end up? We’ll talk about that later.
Recognizing the ineffectiveness of QE2, the Fed was forced to think of another solution.
At this point, they could only continue to artificially inflate the economy and pray for real productivity to kick in.
In the face of public outcries of the threat of inflation (all this dollar-printing doesn’t come free, you know), the Fed announced their latest idea: Operation Twist.
But as you can see from the charts above, this didn’t work either – even with all this extra cash floating around at almost-zero interest rates, the economy still fell flat.
By this time, the economy has become addicted to the shots of (what is essentially) free money by the Fed.
Like a drug, increasing doses of dollar-injection is now required to maintain the status quo.
What would happen to the economy without the Fed constantly printing money and dropping it from the sky?
Unlimited Free Money
This is where QE3 takes the game of “how much drugs can you take” to a whole new level.
You see, unlike previous attempts of QE where there was a finite amount of cash that was injected into the economy, QE3 has no limit.
The Fed has pledged to inject $40 billion per month (while Operation Twist is still going on), for as long as it takes for unemployment rate to go down, and to continue this even if the economy strengthens. This is a very important detail.
Official statements from the FOMC:
… the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens…
In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015
Here’s the billion dollar question: Why would the Fed continue dumping money into the economy even after it strengthens?
Answer: The Fed knows that even if we see an improvement of the official economic figures, the actual economy would still not be strong enough to grow on its own without more cash being pumped in.
Like a terminally-ill patient being pumped full of cheap drugs, the Fed is doing everything it can to make the U.S. economy look healthy. This is just a cosmetic alteration of the symptom, and does not address the root of the problem. It fixes nothing.
Plus, we already know as FACT that the previous QE2 and Operation Twist did not help the economy or lower the unemployment rate…
So why is the Fed still insisting on QE3?
Because they have run out of ideas. That much is clear.
And now they have publicly committed to supplying more cheap money until somehow, something good comes out of it.
I won’t be holding my breath.
Why QE3 won’t work
Besides the ineffectiveness of QE2 and Operation Twist, I have a more boots-on-the-ground perspective as to why QE3 won’t work:
The money that the Fed injects into the economy won’t reach the public (i.e. the average American)
The basic idea behind any type of quantitative easing, is that the money eventually makes its way from the banks and financial institutions into the hands of the public. With more cash, the public buys more goods and services, enabling companies to make profits and grow by hiring more employees. That’s how its “supposed to work”.
In reality however, practically none of that money will ever reach the average U.S. consumer.
Living in Asia, I’ve seen first hand how Western funds have increasingly flowed to the East. The rich in the Western hemisphere are no longer investing in their home country – they are moving their funds to Asia.
I’ve witnessed how increasing foreign investment from the West have pushed housing prices in Singapore to more than double in the past 10 years. This is a trend that has no sign of slowing down.
Look all around Asia and you’ll see rising prices in basic necessities, as well as luxury goods. This is largely caused by increased consumer demand, and inflation.
And therein lies the fallacy behind the assumption behind QE3: that the first people who get access to the QE funds (i.e. banks and other financial institutions) will in turn spend and invest that money in the U.S.
It just isn’t happening. And it isn’t going to happen. That’s the reality of the situation.
Now – Besides the fact that it will be the U.S. taxpayer’s children that will eventually be PAYING for such a colossal waste of money, QE3 basically opens the floodgates to violate one of the Fed’s most important duties, which brings me to the next point…
2. The Fed is willing to risk high inflation for a chance of lower employment
Historically, the Fed is charged with a dual mandate to keep inflation and unemployment low.
Since last Thursday however, it’s pretty clear that they are no longer interested in the former.
Gold (a popular hedge against inflation) prices have breached $1750, as the smart investors stock up to profit from the global inflation that will occur from all that money printing.
And by the way, it is not only the Fed that’s printing money – the European Central Bank has also hopped on the bandwagon.
In response, gold prices immediately rocketed:
My friends, although I have been writing critically about the shenanigans of the American and European policy makers for the past 2 years, I believe this is the one incident that has tilted the situation to a point of no return.
There is no going back now.
An enormous earthquake has struck under the ocean, and it is now only a matter of time before the resulting tsunami strikes our shores.
Calm before the storm
In the meantime, things will be calm and people will go about living their everyday lives, completely oblivious of the carnage that’s accelerating towards them.
And by the time they see it coming, it will be too late to escape.
This is a disaster that will strike multiple countries across the globe in a matter of hours.
There will be heavy casualties. There’s no doubt about this.
There will be people that this message won’t reach. There’s nothing I can do to help them, so I’m spending my time and attention on the people that I can reach.
I’ve done what I can to present the facts of the situation, and it’s now up to you to decide if you want to ignore it, or to do something about it.
When it hits…
What’s likely to happen is the collapse of the current monetary system and the birth of a new one.
This means that anyone heavily invested in the current system will stand to lose the most.
If you’re saving in currencies, you’re in trouble.
If you’re investing in bonds, you’re in trouble.
If you believe the company you work for will protect you and your family, you’re in trouble.
Nobody likes being the bearer of bad news, but I will not step over something that will have such a negative impact on your life, especially when there’s still time to react.
And So My Humble Advice
… would be to immediately reduce your involvement in the formal economy.
Get rid of your USD, and exchange them for the AUD, CAD, HKD, SGD, or even better, precious metals such gold and silver.
Start growing your own food. Get to know influential, highly resilient and/or highly adaptive people.
Get educated in global finance and economics. Learn to be financially independent, either through Forex trading or in some other way.
Get moving, or get left behind
The coming crisis will make the Great Depression in the 1930’s look like a walk in the park.
If you’ve studied economic history, you’d know that great shifts in economic power almost always lead to periods of turmoil and violence.
The riots and protests in Europe so far are only the beginning.
Prepare yourself and your loved ones
Please don’t ignore this message and “carry on as usual”. There isn’t any time to waste.
Do something. Now.
You might be the only person who understands enough of what’s going on to prepare yourself, and your loved ones.
There is still time, but not for long
But you know, things aren’t all doom and gloom.
You may be surprised to find out that in times of financial crises, most millionaires are made.
When there is a fundamental change in the global financial landscape, those who understand what’s going on have a once-in-a-lifetime opportunity to profit from the big shifts.
And those who don’t see it coming, are likely to get swept away in the waves of change.
So get educated, and get prepared.
Naturally, as its creator I would like you to consider starting on your financial independence with the Icarus Forex trading course. I’ve taken a lot of care in preparing it, and the testimonials are something I’m proud of.
But you don’t necessarily have to start there. You can just as easily drop by the library and pick up a book on introductory macro economics. Start reading. Start learning.
Talk to a competent financial advisor and consider re-allocating your investment funds.
Whatever it is, do something.
Let Your Loved Ones Know
Please consider sharing this page with someone you care about.
‘Like’ this page on Facebook, tweet about it, discuss it with your friends and family.
Spread the message.
People need to hear about this.
With a small effort, we stand to protect the lives of the people around us.
Thank you for your time.
Thank you for supporting Pip Mavens.