Some believe QE2 is set to end sometime in June as the Fed completes its purchase of $600 billion in Treasurys. Speculation over QE3 has already begun as trillions of dollars in stimulus, so far, still leaves us with the question, are we recovering or double-dipping?
As this week begins, all eyes remain fixed on the Fed as Ben Bernanke prepares to address the press on Wednesday. Is QE ending? Are rates headed higher? Is inflation really a Transitory event?
The chatter has been that QE2 will end in June, raising the question, what will that do to the markets as the Fed unplugs the lifeline of liquidity? That is, if the lifeline is to be unplugged. Here's a clue. In November 2010, when the Fed announced their $600 billion Treasury buy-back, they also mentioned the potential to use principal payments received against other assets, like mortgage-backed securities, to extend the effort beyond the $600 billion. It was believed, in November, this could allow the Fed to buy an additional $250 - $300 billion of Treasurys without printing more money.
Little has been said of this potential $300 billion extension, as though hopes are that we have forgotten. This could allow Bernanke to say something like this.
As we announced in November, we may enhance QE2 by also exchanging some $300 billion of returned principal payments for Treasurys. This will allow us to continue our efforts of purchasing Treasurys, through the remainder of the fiscal year. There are currently no plans for QE3.
Essentially, Bernanke will tell us nothing has changed. Whatever his words have made you believe in the past, he will make you believe there is no reason to think otherwise. And, in my humble opinion, if this is not the message given, it will be that the financial world has just collapsed.
If nothing truly changes, inflation will continue to rise, the stock bubble will expand, real estate will still languish and the debt bubble will move closer to bursting as the debt ceiling is raised. Once the debt ceiling is raised, hundreds of billions of stimulus, already built into the current budget, will be unleashed and the economy will get another fix of credit to stave off withdrawal from its credit addiction.
There will be no reason for gold and silver prices to reverse trend, in fact, news is already leaking that China is about to exit the dollar in a massive way while the scramble to own ever more precious metals in their Nation's reserves, continues.
The more things change the more they stay the same. For breaking gold news and the latest economic reports, always visit LearCapital.com.