The unelected central planners at the Federal
Reserve have decided that the time has come to slightly taper the
amount of quantitative easing that it has been doing. On
Wednesday, the Fed announced that monthly purchases of U.S. Treasury
bonds will be reduced from $45 billion to $40 billion, and monthly
purchases of mortgage-backed securities will be reduced from $35
billion to $30 billion. When this news came out, it sent
shockwaves through financial markets all over the planet. But
the truth is that not that much has really changed. The Federal
Reserve will still be recklessly creating gigantic mountains of new
money out of thin air and massively intervening in the financial
marketplace. It will just be slightly less than before.
However, this very well could represent a very important
psychological turning point for investors. It is a signal that
“the party is starting to end” and that the great bull market of
the past four years is drawing to a close. So what is all of
this going to mean for average Americans? The following are 8
ways that “the taper” is going to affect you and your family…
1.
Interest Rates Are Going To Go Up
Following
the announcement on Wednesday, the yield on 10 year U.S. Treasuries
went up to 2.89% and even CNBC admitted that the taper is a “bad
omen for bonds“. Thousands of other interest rates in our
economy are directly affected by the 10 year rate, and so if that
number climbs above 3 percent and stays there, that is going to be a
sign that a significant slowdown of economic activity is ahead.
2.
Home Sales Are Likely Going To Go Down
Mortgage
rates are heavily influenced by the yield on 10 year U.S.
Treasuries. Because the yield on 10 year U.S. Treasuries is now
substantially higher than it was earlier this year, mortgage rates
have also gone up. That is one of the reasons why the number of
mortgage applications just hit a
new 13 year low. And now if rates go even higher that is
going to tighten things up even more. If your job is related to
the housing industry in any way, you should be extremely concerned
about what is coming in 2014.
3.
Your Stocks Are Going To Go Down
Yes, I know that stocks skyrocketed today.
The Dow closed at a new all-time record high, and I can’t really
provide any rational explanation for why that happened. When
the announcement was originally made, stocks initially sold off.
But then they rebounded in a huge way and the Dow ended up close to
300 points.
A few months ago, when Fed Chairman Ben
Bernanke just hinted that a taper might be coming soon, stocks fell
like a rock. I have a feeling that the Fed orchestrated things
this time around to make sure that the stock market would have a
positive reaction to their news. But of course I absolutely
cannot prove this at all. I hope someday we learn the truth
about what actually happened on Wednesday afternoon. I have a
feeling that there was some direct intervention in the markets
shortly after the announcement was made and then the momentum
algorithms took over from there.
In
any event, what we do know is that when QE1 ended stocks fell
dramatically and the same thing happened when QE2
ended. If you doubt this, just check out this
chart.
Of course QE3 is not being ended, but this
tapering sends a signal to investors that the days of “easy money”
are over and that we have reached the peak of the market.
And if you are at the peak of the market, what
is the logical thing to do?
Sell, sell, sell.
But in order to sell, you are going to need to
have buyers.
And who is going to want to buy stocks when
there is no upside left?
4.
The Money In Your Bank Account Is Constantly Being Devalued
When a new dollar is created, the value of each
existing dollar that you hold goes down. And thanks to the
Federal Reserve, the pace of money creation in this country has gone
exponential in recent years. Just check out what has been
happening to M1. It has nearly doubled since the financial
crisis of 2008…
The
Federal Reserve has been behaving like
the Weimar Republic, and this tapering does not change that very
much. Even with this tapering, the Fed is still going to be
creating money out of thin air at an absolutely insane rate.
And
for those that insist that what the Federal Reserve is doing is
“working”, it is important to remember that the crazy money
printing that the Weimar Republic did worked
for them for a little while too before ending in complete
and utter disaster.
5.
Quantitative Easing Has Been Causing The Cost Of Living To Rise
The
Federal Reserve insists that we are in a time of “low inflation”,
but anyone that goes to the grocery store or that pays bills on a
regular basis knows what a lie that is. The truth is that if
the inflation rate was still calculated the same way that it was back
when Jimmy Carter was president, the official rate of inflation would
be somewhere between
8 and 10 percent today.
Most
of the new money created by quantitative easing has ended up in
the hands of the very wealthy, and it is in the things that the
very wealthy buy that we are seeing the most inflation. As one
CNBC article recently stated, we are seeing absolutely rampant
inflation in “stocks
and bonds and art and Ferraris and farmland“.
6.
Quantitative Easing Did Not Reduce Unemployment And Tapering Won’t
Either
The Federal Reserve actually first began
engaging in quantitative easing back in late 2008. As you can
see from the chart below, the percentage of Americans that are
actually working is lower today than it was back then…
The
mainstream media continues to insist that quantitative easing was all
about “stimulating the economy” and that it is now okay to cut
back on quantitative easing because “unemployment has gone down”.
Hopefully you can see that what the mainstream media has been telling
you has been a
massive lie. According to the government’s own numbers,
the percentage of Americans with a job has stayed at a remarkably
depressed level since the end of 2010. Anyone that tries to
tell you that we have had an “employment recovery” is either very
ignorant or is flat out lying to you.
7.
The Rest Of The World Is Going To Continue To Lose Faith In Our
Financial System
Everyone
else around the world has been watching the Federal Reserve
recklessly create hundreds of billions of dollars out of thin air and
use it to
monetize staggering amounts of government debt. They have
been warning us to stop doing this, but the Fed has been slow to
listen.
The greatest damage that quantitative easing
has been causing to our economy does not involve the short-term
effects that most people focus on. Rather, the greatest damage
that quantitative easing has been causing to our economy is the fact
that it is destroying worldwide faith in the U.S. dollar and in U.S.
debt.
Right now, far more U.S. dollars are used
outside the country than inside the country. The rest of the
world uses U.S. dollars to trade with one another, and major
exporting nations stockpile massive amounts of our dollars and our
debt.
We desperately need the rest of the world to
keep playing our game, because we have become very dependent on
getting super cheap exports from them and we have become very
dependent on them lending us trillions of our own dollars back to us.
If the rest of the world decides to move away
from the U.S. dollar and U.S. debt because of the incredibly reckless
behavior of the Federal Reserve, we are going to be in a massive
amount of trouble. Our current economic prosperity greatly
depends upon everyone else using our dollars as the reserve currency
of the world and lending trillions of dollars back to us at ultra-low
interest rates.
And
there are signs that this is already starting to happen. In
fact, China recently announced that
they are going to quit stockpiling more U.S. dollars. This
is one of the reasons why the Fed felt forced to do something on
Wednesday.
But what the Fed did was not nearly enough.
It is still going to be creating $75 billion out of thin air every
single month, and the rest of the world is going to continue to lose
more faith in our system the longer this continues.
8.
The Economy As A Whole Is Going To Continue To Get Even Worse
Despite
more than four years of unprecedented money printing by the Federal
Reserve, the overall U.S. economy has continued to decline. If
you doubt this, please see my previous article entitled “37
Reasons Why ‘The Economic Recovery Of 2013′ Is A Giant Lie“.
And
no matter what the Fed does now, our decline will continue. The
tragic downfall of small cities such as Salisbury,
North Carolina are perfect examples of what is happening to
our country as a whole…
During the three-year period ending in 2009, Salisbury’s poverty rate of 16% was about 3% higher than the national rate. In the following three-year period between 2010 and 2012, the city’s poverty rate was approaching 30%. Salisbury has traditionally relied heavily on the manufacturing sector, particularly textiles and fabrics. In recent decades, however, manufacturing activity has declined significantly and continues to do so. Between 2010 and 2012, manufacturing jobs in Salisbury — as a percent of the workforce — shrank from 15.5% to 8.3%.
But
the truth is that you don’t have to travel far to see evidence of
our economic demise for yourself. All you have to do is to go
down to the local shopping mall. Sears has experienced sales
declines for
27 quarters in a row,
and at this point Sears is a dead man walking. The following is
from a recent article by
Wolf Richter…
The market share of Sears – including K-Mart – has dropped to 2% in 2013 from 2.9% in 2005. Sales have declined for years. The company lost money in fiscal 2012 and 2013. Unless a miracle happens, and they don’t happen very often in retail, it will lose a ton in fiscal 2014, ending in January: for the first three quarters, it’s $1 billion in the hole.
Despite that glorious track record, and no discernible turnaround, the junk-rated company has had no trouble hoodwinking lenders into handing it a $1 billion loan that matures in 2018, to pay off an older loan that would have matured two years earlier.
And
J.C. Penney is suffering a similar fate. According to
Richter, the company has lost a staggering 1.6 billion dollars
over the course of the last year…
Then there’s J.C. Penney. Sales plunged 27% over the last three years. It lost over $1.6 billion over the last four quarters. It installed a revolving door for CEOs. It desperately needed to raise capital; it was bleeding cash, and its suppliers and landlords had already bitten their fingernails to the quick. So the latest new CEO, namely its former old CEO Myron Ullman, set out to extract more money from the system, borrowing $1.75 billion and raising $785 million in a stock sale at the end of September that became infamous the day he pulled it off.
So don’t believe the hype.
The economy is getting worse, not better.
Quantitative easing did not “rescue the
economy”, but it sure has made our long-term problems a whole lot
worse.
And this “tapering” is not a sign of better
things to come. Rather, it is a sign that the bubble of false
prosperity that we have been enjoying for the past few years is
beginning to end.
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