I thought it was relatively simple to foresee the long-term effects of the Fed's QE policy.  Well, it turns out that Mr. Market has no intention of waiting for the long term.  In the six short days since the announcement:

• Silver has gone vertical.  It's now up over 16% and being aggressively bought on the tiniest pullback (more on silver coming in another post).
• Gold is up over 5%
• Broad-based consumable commodities are up around 5%, on average.
• Trade and currency wars are already starting:  China is downgrading  US Treasury Debt and starting to enforce capital controls.  Other nations are telling us to go fuck ourselves in a variety of ways.

Zimbabwe Ben has completely screwed the pooch.  At this point he's trapped.  If he changes his mind on QE, both the stock and bond markets are likely to collapse.  Banks will immediately start blowing up left and right.  If he keeps going, other nations will move to protect themselves and then let the dollar go.  The US gets severe inflation in the short to medium term, followed by a currency collapse.

The only sensible thing to do at this point is kick Bernanke to the curb, announce that QE will be continued in the short term, as needed and only for liquidity purposes, and start to wind down the big banks.  This, of course, will cause other types of pain, but there is no way out at this point that won't be very painful.

The US is like one of the victims in the SAW movies.  To save our lives we have to disfigure ourselves.  Are we going to be able to do it?

Posted by: Hermit Dave at 09:56 AM | No Comments | Add Comment
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