Jim Sinclair: QE3 To Infinity-The Final End Game

Jim Sinclair: QE3 To Infinity-The Final End Game



Jim Sinclair has sent an email alert to subscribers discussing the background of the OTC collapse in the wake of Lehman Brothers, and WHY the Fed has no other options than to continue QE to infinity. Sinclair states that the coming end game will be the recognition of the weakness of the Fed’s balance sheet, and a resulting collapse in confidence in 2015-2017.

As QE3 to infinity moves ahead, the balance sheet of the Federal Reserve continues to acquire worthless paper in exchange for dollars. Junk moved onto the balance sheet of the US Federal Reserve as the common share of the USA, the US dollar, continues to expand exponentially.

The end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit grows, US state deficit spending continues to grow and the quality of the Federal Reserve balance sheet proceeds to deteriorate further.

Therefore the end game is the perception of the weakness of the lender of last resort, the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.
MUST READ!

From Jim Sinclair:

The final end game of QE3 to infinity, with a month or two off from time to time, will be a product of the long term viability of the Federal Reserve Balance sheet and the impact on the dollar there from.

Let’s review what has transpired and begin to look at what will happen:

OTC derivative manufacturers and distributors sold fraudulent paper to almost every entity as clients of the Western world financial system. Inherently the OTC derivatives manufacturers and distributors had part of the transaction on their books. No problem as long as the entire scam was a “Daisy Chain,” a connected set of transactions that has the appearance of risk but when all netted out equals almost zero.
Until Lehman was flushed, and flushed it was, most all OTC derivatives could have been netted to zero in a derivative resurrection bank. Losers would have rejoiced and winners would have declared war. However when Lehman was forced into bankruptcy it broke the “Daisy Chain” (a chain of near risk-less transactions when netted) of the OTC derivatives scam. At this point winners had won huge and loser had lost huge and there was no longer a means of repair to the quadrillion dollar scam. The problem has no practical solution other than transferring all losing paper to the balance sheet of the Federal Reserve where then it was anticipated no non-government “mark to market” audit would ever occur. It was the perfect hole to stick the junk into.

The size of the OTC derivative market stood at one quadrillion one hundred and forty four trillion as reported by the Bank of International Settlement, the counter internationally.

The Bank of international Settlements, seeing this outrageous number, changed their computer method of valuation to maturity assuming no failures and reduced the size of OTC derivatives of all kinds to a more acceptable but still huge number of $700 trillion notional value.
In the first and second round of QE the Federal reserve purchased OTC derivatives including the variety called securitized mortgage debt to remove them from the balance sheets of the Western world financial system, thereby improving the Western world’s financial institutions balance sheet and preventing an international industry wide bankruptcy. That means the Federal Reserve has impaired its balance sheet in order to repair some of the balance sheet integrity of the Western world financial system. The amount they have purchased is significant, but not compared to total outstanding above more than one quadrillion dollars.

The reason for QE to infinity, QE3, is the failure of business activity in the Western world to pick up with early huge monetary stimulation so as to repair the balance sheet of the Western financial world financial system. The unseen crisis is the hidden weakness of the Western world financial system thanks to FASB (The gatekeepers of world accounting) which allows financial institutions internationally to hide their losses by valuing their paper at whatever the bank wants it to be with no reference to seek a market value, primarily because there is none to seek.

The crisis not seen by Fed observers is the true balance sheet condition of the loses on the trillions of dollar of worth-less paper fraudulent paper because numbers are given but no independent mark to market audit has been or is likely performed.
As QE3 to infinity moves ahead, the balance sheet of the Federal Reserve continues to acquire worthless paper in exchange for dollars. Junk moved onto the balance sheet of the US Federal Reserve as the common share of the USA, the US dollar, continues to expand exponentially.

The end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit grows, US state deficit spending continues to grow and the quality of the Federal Reserve balance sheet proceeds to deteriorate further.

Therefore the end game is the perception of the weakness of the lender of last resort, the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.

Now you know what brings about the end game.

In the future I will do small simple articles dealing with the impact on markets of a to be Bankrupt Central Bank, the US Federal Reserve. The end game could come sooner, but only if there was an independent “mark to market” audit of the Federal Reserve inventory of worthless paper which remains unlikely no matter who wins the election in November.

Those of you invested in gold and silver vehicles of all kinds (with the exception of ETFs and futures) rest well this weekend. $3500 will easily be a place gold trades. The Canadian dollar and blasphemy to the euro snobs, the Swiss franc, remain go to vehicles for cash positions. Yes cash because you to not have to pay to own them as you do with a sovereign paper with negative interest.


Your watchman,
Jim


http://www.silverdoctors.com/qe3-to-...me/#more-14280

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The size of the OTC derivative market stood at one quadrillion one hundred and forty four trillion as reported by the Bank of International Settlement, the counter internationally.

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This gives me butterflies in the stomach...

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Originally Posted by singular_me

This gives me butterflies in the stomach...

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If we utilize Galilean reductio ad absurdum analysis on the FED, one realizes that the FED will one day own in paper title virtually all domestic assets: treasury debt (bills, notes and bonds in the many $trillions), home and commerical mortgages, corporate bonds, stocks and anything else demonimated in dollars. Wrap your brain around that. The number of trillions of dollars that will be in circulation at that point will be near infinite by today's standards, at least $50 trillions!

Got gold? Got silver? Got farm land? Got guns?

Germany Hyperinflation Firsthand -Schiff at Moneyshow 2012
/www.youtube.com/watch?v=v2lcUT1eMBE
www.youtube.com/watch?v=v2lcUT1eMBE
Published on May 20, 2012 by gary flanzer

At the Peter Schiff seminar at the Moneyshow 2012 Las Vegas, a WW2 survivor from Germany approached Peter to say she has firsthand knowledge of the currency collapse in Germany. Today seems like a repeat of what she experienced as a German child. She makes comparison of Obama to Hitler government and says the currency collapse happened quickly., A bank run could happen again if people don't put their assets in hard currencies like gold and silver. (Very very sad interview ending!)

Quote:

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Originally Posted by Golden

Germany Hyperinflation Firsthand -Schiff at Moneyshow 2012
/www.youtube.com/watch?v=v2lcUT1eMBE
www.youtube.com/watch?v=v2lcUT1eMBE
Published on May 20, 2012 by gary flanzer

At the Peter Schiff seminar at the Moneyshow 2012 Las Vegas, a WW2 survivor from Germany approached Peter to say she has firsthand knowledge of the currency collapse in Germany. Today seems like a repeat of what she experienced as a German child. She makes comparison of Obama to Hitler government and says the currency collapse happened quickly., A bank run could happen again if people don't put their assets in hard currencies like gold and silver. (Very very sad interview ending!)

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"Dat mann hat gold unt silber!!!!!"

Damn straight mein frau! Tragically, 99% of Americans will not listen to or profit from your hard-earned wisdom.

Review: QE3 To Infinity–The Final End Game

September 25, 2012, at 6:05 pm
by Jim Sinclair in the category General Editorial | http://www.jsmineset.com/wp-content/..._famfamfam.gif Print This Post | http://www.jsmineset.com/wp-content/..._famfamfam.png Email This Post

Jim Sinclair’s Commentary

Here is a review to offset the drivel pouring out of MSM declaring "QE to Infinity" as powerless and ineffectual.
Expectations of deflationary powers overpowering QE to infinity is rank madness pandered to by world class morons in, and outside our community

My Dear Extended Family,

The final end game of QE3 to infinity, with a month or two off from time to time, will be a product of the long term viability of the Federal Reserve Balance sheet and the impact on the dollar there from.

Let’s review what has transpired and begin to look at what will happen:

1. OTC derivative manufacturers and distributors sold fraudulent paper to almost every entity as clients of the Western world financial system. Inherently the OTC derivatives manufacturers and distributors had part of the transaction on their books. No problem as long as the entire scam was a "Daisy Chain," a connected set of transactions that has the appearance of risk but when all netted out equals almost zero.
2. Until Lehman was flushed, and flushed it was, most all OTC derivatives could have been netted to zero in a derivative resurrection bank. Losers would have rejoiced and winners would have declared war. However when Lehman was forced into bankruptcy it broke the "Daisy Chain" (a chain of near risk-less transactions when netted) of the OTC derivatives scam. At this point winners had won huge and loser had lost huge and there was no longer a means of repair to the quadrillion dollar scam. The problem has no practical solution other than transferring all losing paper to the balance sheet of the Federal Reserve where then it was anticipated no non-government "mark to market" audit would ever occur. It was the perfect hole to stick the junk into.
3. The size of the OTC derivative market stood at one quadrillion one hundred and forty four trillion as reported by the Bank of International Settlement, the counter internationally.
4. The Bank of international Settlements, seeing this outrageous number, changed their computer method of valuation to maturity assuming no failures and reduced the size of OTC derivatives of all kinds to a more acceptable but still huge number of $700 trillion notional value.
5. In the first and second round of QE the Federal reserve purchased OTC derivatives including the variety called securitized mortgage debt to remove them from the balance sheets of the Western world financial system, thereby improving the Western world’s financial institutions balance sheet and preventing an international industry wide bankruptcy. That means the Federal Reserve has impaired its balance sheet in order to repair some of the balance sheet integrity of the Western world financial system. The amount they have purchased is significant, but not compared to total outstanding above more than one quadrillion dollars.
6. The reason for QE to infinity, QE3, is the failure of business activity in the Western world to pick up with early huge monetary stimulation so as to repair the balance sheet of the Western financial world financial system. The unseen crisis is the hidden weakness of the Western world financial system thanks to FASB (The gatekeepers of world accounting) which allows financial institutions internationally to hide their losses by valuing their paper at whatever the bank wants it to be with no reference to seek a market value, primarily because there is none to seek.
7. The crisis not seen by Fed observers is the true balance sheet condition of the loses on the trillions of dollar of worth-less paper fraudulent paper because numbers are given but no independent mark to market audit has been or is likely performed.
8. As QE3 to infinity moves ahead, the balance sheet of the Federal Reserve continues to acquire worthless paper in exchange for dollars. Junk moved onto the balance sheet of the US Federal Reserve as the common share of the USA, the US dollar, continues to expand exponentially.
9. The end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit grows, US state deficit spending continues to grow and the quality of the Federal Reserve balance sheet proceeds to deteriorate further.
10. Therefore the end game is the perception of the weakness of the lender of last resort, the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.

Now you know what brings about the end game.

In the future I will do small simple articles dealing with the impact on markets of a to be Bankrupt Central Bank, the US Federal Reserve. The end game could come sooner, but only if there was an independent "mark to market" audit of the Federal Reserve inventory of worthless paper which remains unlikely no matter who wins the election in November.
Those of you invested in gold and silver vehicles of all kinds (with the exception of ETFs and futures) rest well this weekend. $3500 will easily be a place gold trades. The Canadian dollar and blasphemy to the euro snobs, the Swiss franc, remain go to vehicles for cash positions. Yes cash because you to not have to pay to own them as you do with a sovereign paper with negative interest.


Your watchman,
Jim

Operation Screw

Wednesday, September 26, 2012 – by Peter Schiff
http://gold-silver.us/images/library/Schiff.jpg
Peter Schiff

With yesterday's Fed decision and press conference, Chairman Ben Bernanke finally and decisively laid his cards on the table. And confirming what I have been saying for many years, all he was holding was more of the same snake oil and bluster. Going further than he has ever gone before, he made it clear that he will be permanently binding the American economy to a losing strategy. As a result, September 13, 2012 may one day be regarded as the day America finally threw in the economic towel.
Here is the outline of the Fed's plan: buy hundreds of billions of home mortgages annually in order to push down mortgage rates and push up home prices, thereby encouraging people to build and buy homes and spend the extracted equity on consumer goods. Furthermore, the Fed hopes that ultra-cheap money will push up stock prices so that Wall Street and stock investors feel wealthier and begin to spend more freely. He won't admit this directly, but rather than building an economy on increased productivity, production, and wealth accumulation, he is trying to build one on confidence, increased leverage, and rising asset prices. In other words, the Fed prefers the illusion of growth to the restructuring needed to allow for real growth.
The problem that went unnoticed by the reporters at the Fed's press conference (and those who have written about it subsequently) is that we already tried this strategy and it ended in disaster. Loose monetary policy created the housing and stock bubbles of the last decade, the bursting of which almost blew up the economy. Apparently for Bernanke and his cohorts, almost isn't good enough. They are coming back to finish the job. But this time, they are packing weaponry of a much higher caliber. Not only are they pushing mortgage rates down to historical lows but now they are buying all the loans!
Last year, the Fed launched the so-called "Operation Twist," which was designed to lower long-term interest rates and flatten the yield curve. Without creating any real benefits for the economy, the move exposed US taxpayers and holders of dollar-based assets to the dangers of shortening the maturity on $16 trillion of outstanding government debt. Such a repositioning exposes the Treasury to much faster and more painful consequences if interest rates rise. Still, the set of policies announced yesterday will do so much more damage than "Operation Twist," they should be dubbed "Operation Screw." Because make no mistake, anyone holding US dollars, Treasury bonds, or living on a fixed income will have their purchasing power stolen by these actions.
Prior injections of quantitative easing have done little to revive our economy or set us on a path for real recovery. We are now in more debt, have more people out of work, and have deeper fiscal problems than we had before the Fed began down this path. All the supporters can say is things would have been worse absent the stimulus. While counterfactual arguments are hard to prove, I do not doubt that things would have been worse in the short-term if we had simply allowed the imbalances of the old economy to work themselves out. But in exchange for that pain, I believe that we would be on the road to a real recovery. Instead, we have artificially sustained a borrow-and-spend model that puts us farther away from solid ground.
Because the initials of quantitative easing − QE − have brought to mind the famous Queen Elizabeth cruise ships, many have likened these Fed moves as giant vessels that are loaded up and sent out to sea. But based on their newly announced plans, the analogy no longer applies. As the new commitments are open-ended, quantitative easing will now be delivered via a non-stop conveyor belt that dumps cheap money on the economy. The only variable is how fast the belt moves.
Fortunately, the crude limitations of the Fed's only policy tool have become more apparent to the markets. If you must stick with the nautical metaphors, QE3 has sunk before it has even left port. The move was explicitly designed to push down long-term interest rates, but interest rates spiked significantly in the immediate aftermath of the announcement. Traders realize that an open-ended commitment to buying bonds means that inflation and dollar weakness will likely destroy any nominal gains in the bonds themselves. To underscore this point, the Fed announcement also caused a sharp selloff in Treasuries and the dollar and a strong rally in commodities, especially precious metals.
Given that 30-year fixed mortgages are already at historic lows, there can be little confidence that the new plan will succeed in pushing them much lower, especially given the upward spike that occurred in the immediate aftermath of the announcement. Instead, Bernanke is likely trying to provide the confidence home owners need to exchange fixed-rate mortgages for lower adjustable rate loans − which would free up more cash for current consumer spending. He is looking for homeowners to do their own twist. If he succeeds, more homeowners will be vulnerable to increasing rates, which will further limit the Fed's future ability to increase rates to fight rising prices.
The goal of the plan is to create consumer purchasing power by raising home and stock prices. No one seems to be considering the likelihood that unending QE will fail to lift bond, stock, or home prices, but will instead bleed straight through to higher prices for food, energy, and other consumer staples. If that occurs, consumers will have less purchasing power as a result of Bernanke's efforts, not more.
The Fed decision comes at the same time as the situation in Europe is finally moving out of urgent crisis mode. While I do not think the ECB's decision to underwrite more sovereign debt from troubled EU members will work out well in the long term, at least those moves have come with some German strings attached [For more on this, see John Browne's article from earlier this week]. As a result, I feel that the attention of currency traders may now shift to the poor fundamentals of the US dollar, rather than the potential for a breakup of the euro.
In the meantime, the implications for American investors should be clear. The Fed will try to conjure a recovery on the backs of currency debasement. It will not stop or alter from this course. If the economy fails to respond to the drugs, Bernanke will simply up the dosage. In fact, he is so convinced we will remain dependent on quantitative easing that he explicitly said he won't turn off the spigots even if things noticeably improve. In other words, the dollar is screwed.
The Daily Bell is pleased to offer our readers Peter Schiff's Economic Commentary. This column was originally published September 14, 2012 at EuroPac.net.

Pushing down mortgage interest rates by buying MBS is analogous to buying treasuries to push down yields: the price of the underlying asset increases.....in fact for a bond, only in theory for real estate. Even if it works, and home prices rise slowly and stabilize, what do you do after interest rates have hit bottom and are bouncing off real rates of 0%? Maybe the next great innovation will be negative interest rate mortgages? You buy a house, the bank issues the mortgage to you and sends you a check (negative interest) each month? It sounds insane.....but then again....

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Originally Posted by mamboni

Jim Sinclair: QE3 To Infinity-The Final End Game



Jim Sinclair has sent an email alert to subscribers discussing the background of the OTC collapse in the wake of Lehman Brothers, and WHY the Fed has no other options than to continue QE to infinity. Sinclair states that the coming end game will be the recognition of the weakness of the Fed’s balance sheet, and a resulting collapse in confidence in 2015-2017.

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Sprott: No Economic Recovery

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Originally Posted by MAGNES

I don't post much on Economics, just some background,
I joined GIM May2006 researching the FED 2005 and what they
were doing with M3, something we don't even look at now, recent
M3 is down to sideways as well, the money is all balance sheet parked,
non of it is making it to the real economy, if it did, M3 would
be going up, using the info we had we were able to predict
the future, and maybe capitalize on it and protect ourselves,
certain actions create certain realities, the economics
works, throw in ARMS resetting Jan2007 into the mix, boom is coming
with 3-6 months materialization visible for all, and we got our first
taste of the future August 2007 with major bank run in California,
it took a year for it to really hit, with WaMu and Lehman, and the
major dominoes started falling, we have seen a lot, until there is
a change in course the outcomes will be the same and worse.
We were able to predict the future with far less craziness pre 2007.
The money masters are good at what they do, I am surprised
they have been able to string this along in this fashion, their
course has not changed and the future is somewhat predictable,
more of the same and worse, forget time lines, the way we are
going, maybe we won't see a bottom in my lifetime ? I will be turning 40 soon.
Plan your life accordingly, self-sufficient as much as possible, and live.

Sept 2012 we have " QE3 " , aimed at MBS, monetizing, no budget or time line,
just $40 Billion per month, according to their reasoning, it will boost the economy,
consumption, housing , jobs, they don't give a shit about jobs, the only thing it
will do is improve some balance sheets short term and like past I highly doubt
you will get the banks investing in production. This is war on the middle class.

Great Sprott interview, covering all of this.
Sprott, linked to many times in past had great website full of free great info.
Sprott has always been a leader, key to watch.
http://www.sprott.com/precious-metal...-metals-watch/

Article is a bit dated, but very relevant here with QE3 MBS Monetization.

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Catherine Austin-Fitts (link posted elsewhere in this forum) states the FR is buying up all the fraud MBS and that is the end game, with the Banks promising to buy T-Paper with the fraud-buy-backs. I guess, then the FR will "cancel the paper" and reset the system. Should take a spell. So much for the "collapse" talk.

So many endgame choices...STILL a game of "Clue."

Fitts' "slow burn" explanation makes the most sense.

Sinclair's explanation leaves a big open ended question mark, and makes me wonder A) why he's being so archane, B) what's in it for him to speak imprecisely, since he's an insider/elite in the flesh.

hmmm

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Originally Posted by beefsteak

Catherine Austin-Fitts (link posted elsewhere in this forum) states the FR is buying up all the fraud MBS and that is the end game, with the Banks promising to buy T-Paper with the fraud-buy-backs. I guess, then the FR will "cancel the paper" and reset the system. Should take a spell. So much for the "collapse" talk.

So many endgame choices...STILL a game of "Clue."

Fitts' "slow burn" explanation makes the most sense.

Sinclair's explanation leaves a big open ended question mark, and makes me wonder A) why he's being so archane, B) what's in it for him to speak imprecisely, since he's an insider/elite in the flesh.

hmmm

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How does one "cancel the paper" which destroys the dollar, and not result in system collapse?

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Originally Posted by mamboni

How does one "cancel the paper" which destroys the dollar, and not result in system collapse?

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it only really collapses when the masses lose 'faith' in the dollar.

when the general public realizes it's a fancy demonstration of modern printing technology, and little more ... and the bond market demands a reasonable interest rate on US bonds - one that accounts for inflation, e.g. 10%, which would make the interest payments $1.5 Trillion a year - un-payable - then, game over.


imagine if the US had to pay even 4% or 7% like European countries, to finance their debt ...

i think that willingness to loan to the US gov. at rates below the inflation rate - when that stops - BIG PROBLEM.

Mamboni,
the Federal Reserve does this "cancel old paper" and withdraw already issued US Currency all the time. They are called "Repo's or Repurchases" and are executed between themselves and the banks, mutual funds, hedgefunds, and wealthy individuals who buy directly from the ongoing Federal Auctions all the time.

If you recall, I think it was ZERO that made a big deal out of QEIII announcement covering both MBS paper AND Treasury Paper purchases of approx $40B per month to infinity. Using a 10:1 rehypothecation, that works out to about $1T of sopped up fraudulent MBS "impaired assets" per QUARTER.

A lot of people I think missed that last "purchase category" but Fitt's didn't.

It's a very complete circle "issue and replace, or issue and cancel " ... one that has been going on for literally decades since the FR was created. It's part of the way they have justified their existence all these years...generating transaction fees as a middle man, when our original system was designed to be between banks and the US Treasury, with similar circuitious machinations.

I used to have in my possession a "handout" listing all the types of FR transactions and whether they were adding money to, or subtracting money from, or cancelling by pairing up matching transactions. I can't lay my hands on it at the moment. It was a handout back in my pre-grad college business course work. I'm guessing there is a young buck or two on this forum who has it marked as a "rav fav on his iPad" Maybe one of them will step up and "share" and clarify.

2 options:

raise interest rates and blow up the debt ridden american consumer

or

print money and send our currency in to the abyss.

either way, it's catastrophic.

(i stole that, let's see who knows who said it. it's ultimately very true).

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Originally Posted by chad

2 options:

raise interest rates and blow up the debt ridden american consumer

or

print money and send our currency in to the abyss.

either way, it's catastrophic.

(i stole that, let's see who knows who said it. it's ultimately very true).

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My guess is Celente. I can see him in his scarf with his funny accent.

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Originally Posted by mamboni

Pushing down mortgage interest rates by buying MBS is analogous to buying treasuries to push down yields: the price of the underlying asset increases.....in fact for a bond, only in theory for real estate. Even if it works, and home prices rise slowly and stabilize, what do you do after interest rates have hit bottom and are bouncing off real rates of 0%? Maybe the next great innovation will be negative interest rate mortgages? You buy a house, the bank issues the mortgage to you and sends you a check (negative interest) each month? It sounds insane.....but then again....

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Tens of thousands of home owners could have their mortgage paid by banks if interest rates continue to fall unless their terms and conditions are changed, experts said.

The bizarre situation - where banks actually end up paying customers for having a home loan – could emerge as a result of plunging interest rates, they explained.

It affects borrowers with tracker mortgages, who have seen their monthly mortgage repayments shrink after the Bank of England cut interest rate by three percent in as many months.

The majority of borrowers with a tracker deal pay the bank rate, plus a percentage on top. But some deals available just over a year ago allowed borrowers to pay the bank rate minus a percentage.

If the bank rate falls much further - and there are widespread predictions of a zero rate - these borrowers could be paying 'negative interest' on their mortgage.

Peter O'Donovan, of independent financial advisers Bestinvest, said: "It is possible that we may be heading towards a very surreal situation where lenders may end up having to pay borrowers as they head into negative interest.

http://www.telegraph.co.uk/finance/p...-by-banks.html

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Originally Posted by Sparky

Tens of thousands of home owners could have their mortgage paid by banks if interest rates continue to fall unless their terms and conditions are changed, experts said.

The bizarre situation - where banks actually end up paying customers for having a home loan – could emerge as a result of plunging interest rates, they explained.

It affects borrowers with tracker mortgages, who have seen their monthly mortgage repayments shrink after the Bank of England cut interest rate by three percent in as many months.

The majority of borrowers with a tracker deal pay the bank rate, plus a percentage on top. But some deals available just over a year ago allowed borrowers to pay the bank rate minus a percentage.

If the bank rate falls much further - and there are widespread predictions of a zero rate - these borrowers could be paying 'negative interest' on their mortgage.

Peter O'Donovan, of independent financial advisers Bestinvest, said: "It is possible that we may be heading towards a very surreal situation where lenders may end up having to pay borrowers as they head into negative interest.

http://www.telegraph.co.uk/finance/p...-by-banks.html

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This is insanity only possible in a fiat money system loaded with leverage and a central bank that can manipulate interest rates at will. ZIRP is destroying capital and with it, the foundation of a healthy free market. This will not end well.

yeah, sure, Jim knows a lot about gold and gold markets.

but i like the pictures of his animals.

http://www.jsmineset.com/wp-content/...001_thumb6.jpg

he says those are some of his daughter's animals, in Africa.

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Originally Posted by mamboni

This is insanity only possible in a fiat money system loaded with leverage and a central bank that can manipulate interest rates at will. ZIRP is destroying capital and with it, the foundation of a healthy free market. This will not end well.

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What, you're saying that the money supply needs to in some way be tied to the production of goods and services? Now there's an interesting concept. Insanity indeed.

Yours truly finds this Donovan quote rather odd, and quite telling frankly. One should note this is being dished up courtesy of the London Financial Times.

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Peter O'Donovan, of independent financial advisers Bestinvest, said: "It is possible that we may be heading towards a very surreal situation where lenders may end up having to pay borrowers as they head into negative interest.

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Here's why it's "odd."

I've personally sold real estate in the past (homes and farmland) at negative interest rates (also called teaser rates) in order to help a young family to get into my home after I'd already moved out and into another place. Of course, it was always accompanied by a 5 year balloon payment. So, said buyer "either would get caught up and pay me" OR I'd get the real estate back. All the while, I at least collected SOME interest on my former home, and at the same time it was NOT vacant, which would invite vandalism, etc., lowering my equity. So, the thought of banks "paying borrowers" is not a foreign one, nor one to be dreaded. The dread for the homeowner is the inevitable and always disclosed BALLOON payment. They had to sign a separate piece of paper stating that they understood at the time of signing that they were in this negative interest rate deal with me, as an owner.

The part I find quite telling is that this concept is being postured as some "new mortgage wrinkle" package.

In my mind, that is only "a wrinkle" in the eye of the inexperienced reader. In otherwords, this particular scenario --as I suspect many other current headlines-- is being packaged for the unawakened, and part of the overall "scare mongering" currently running rampant among the sheeple who has never sold RE this way.

While this is a possibility, the reality is, the bankers have NOT disclosed what the "catchup/balloon payment" gig will look like. I do not expect the banks to tolerate this negative interest rate payment scenario for long. I suspect, there is some "fine print" clause which will be involved, to "kick out said mortagee" or "lease back" etc. One doesn't have to feel sorry for the banks in ANY interest rate scenario.

Afterall, aren't they holding millions of properties currently who have NO owners, and no inhabitants. Doesn't seem to be hurting their "profitability" since the bankers are still making money hand over fist at the overnight Fed Discount Window, and just allowing the properties to sit vacant until "things change." Heck, they are even demolishing properties upon which they hold mortgages. How's THAT for a wrinkle? LOL

Jis' sayin'

Quote:

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Originally Posted by beefsteak

Yours truly finds this Donovan quote rather odd, and quite telling frankly. Here's why it's "odd."

I've personally sold real estate in the past (homes and farmland) at negative interest rates (also called teaser rates) in order to help a young family to get into my home after I'd already moved out and into another place. Of course, it was always accompanied by a 5 year balloon payment. So, said buyer "either would get caught up and pay me" OR I'd get the real estate back. All the while, I at least collected SOME interest on my former home, and at the same time it was NOT vacant, which would invite vandalism, etc., lowering my equity. So, the thought of banks "paying borrowers" is not a foreign one, nor one to be dreaded. The dread for the homeowner is the inevitable and always disclosed BALLOON payment. They had to sign a separate piece of paper stating that they understood at the time of signing that they were in this negative interest rate deal with me, as an owner.

The part I find quite telling is that this concept is being postured as some "new mortgage wrinkle" package.

In my mind, that is only "a wrinkle" in the eye of the inexperienced reader. In otherwords, this particular scenario --as I suspect many other current headlines-- is being packaged for the unawakened, and part of the overall "scare mongering" currently running rampant among the sheeple who has never sold RE this way.

Jis' sayin'

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Balloons mortgages are for special circumstances and should only represent a small minority of outstanding mortgages. I almost employed one in 1983 when buying an apartment in Manhattan because of the super high interest rates on fixed mortgages. The balloon scared me into an adjustable rate mortgage instead and that worked out well in the end. But for people to consider balloon mortgages in the present environment of lowest fixed rates in decades is either madness or desperation. It's as if the society is so addicted to debt and credit that it would even sign on to negative interest rates just to buy more time, knowing that the balloon payment later is simply too gigiantic to pay back. Besides, everyone in reality is broke.

I guess I wasn't clear, sorry.

There are "balloon mortgages" and there are negative interest rate balloon mortgages.

I was trying to describe a common, NEGATIVE interest rate, with balloon mortgage -- one which had a balloon at the end of 5 years-- one which I've previously offered and was accepted in a personal real estate sale (home and farmland combine) and tried to provide just one example of.

Yes, the majority of current and recent pool of real estate buyers IS broke, and too asleep to know it. I think it is part of the invincibility of youth. HGTV "property brothers, property virgins, love it or list it" TV show venues show an unending parade of suckers DAILY, week in and week out. It's sickening, and nauseating Televised openhouse tours from one's armchair.

Helen likes watching them for decorating ideas. Me? It's noise plus revolting to see so many of the over-indebted younger folk get into deals that are merely gossamer dreams and will turn to sawdust soon enough. With bankers drooling over the prospects of buying, flipping to FHA/FMAC/GMAE/now FR, and rubbing their hands together with hideous glee, it's enough to make me leave the room and go to my workshop when she's on one of these nightly HGTV watching jags. Good thing for a man to have a hobby or two.

I guess if I was younger and more hip, I'd be calling my workshop a man cave. Except, there's no TV in there. LOL

Interesting ZERO offering posted just now about Fed Destroying Money, and why rampant inflation hasn't kicked in ..... yet.

Sure supports Fitt's explanation (and L.W.'s as well) FR buying mortgages to infinity, PLUS Treasury Paper....

Guest Post: Why QE Won't Create Inflation Quite As Expected

http://www.zerohedge.com/sites/defau.../picture-5.jpg
Submitted by Tyler Durden on 09/27/2012 12:11 -0400

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Fed can create money but if it doesn't end up as household income it is "dead money."


In the consensus view, the Federal Reserve's unlimited quantitative easing (QE3) programs will do two things: 1) boost stocks and other "risk on" assets and 2) generate inflation. The two follow-on effects are related, of course; gold and other hard assets are rising in anticipation of higher inflation.

But all is not quite as it seems when it comes to the inflationary effect of creating money.

Let's use some examples to illustrate key features of the relationship between money creation and inflation. Let's say a central bank prints $1 trillion in cash currency, digs a big hole and buries it. Does that $1 trillion in new money cause inflation? No, because it never got into the hands of people who might trade it for goods and services in the real world.

Recall that the premise of monetary inflation is straightforward supply and demand: when money is abundant and goods are scarce, the price of goods rises as abundant demand (everybody has lots of cash or credit) meets limited supply (limited oil, gold, grain, etc.) in an open marketplace.

Let's say the Fed electronically creates $1 trillion and metaphorically buries it in some account where it sits as "dead money." It cannot trigger inflation because it isn't reaching the hands of people who might use it to buy scarce goods and services.

Let's also recall that money is destroyed, not just created, when assets fall in value and bad debt is written down. Consider a house purchased for $350,000 at the top of the real estate bubble with a $50,000 cash down payment and a $300,000 mortgage. The owner defaults and the house is sold for $150,000. The $50,000 down payment was cash; it was not “on paper.” It has not been transferred to someone else; it has vanished.

The same can be said of the $150,000 the bank lost on the mortgage. The bank’s cash reserves (capital) take a $150,000 hit. That was real money, too, and it wasn’t transferred to someone else; it disappeared. Thus $200,000 of real money has been destroyed.

To the degree that immense overhangs of bad debt are slowly being written off, money is being destroyed. If the Fed “prints” $500 billion a year, and write-downs erase $500 billion, the money supply hasn’t expanded at all.

The Fed bought $1.1 trillion in mortgage-backed securities as part of its earlier QE interventions in 2009-10. Notice that the $1.1 trillion has already fallen to $850 billion--a decline of $250 billion in just a few years. The loans were paid down, paid off or written off.

http://www.oftwominds.com/photos2012/FED-MBS9-12.png

According to the Balance Sheet of Households (federalreserve.gov), home mortgages have declined from $10.3 trillion in 2009 to $9.7 trillion in 2012. Credit is being destroyed in the primary asset of the American household, their home: one-third have zero equity (underwater), millions more have insufficient equity to borrow against/extract, and millions more are not creditworthy enough to borrow more, even though they have equity in their house.

The decline in asset values has destroyed money and credit.

The general assumption is that the Fed buys dodgy MBS from banks which then take the money and dump it into the stock market, pushing stocks higher. This assumption fails to consider the weak balance sheets of banks, which will soon be required to post some collateral behind their trillions of dollars of outstanding derivatives.

The favored collateral is U.S. Treasury bonds, and so banks may be constrained by their need to build reserves against future writedowns. They may end up buying Treasuries as collateral rather than gambling in the equities market. The newly created money may end up as "dead money" in reserves, not cash propping up equities.

A number of indicators suggest money is not flowing into hands which might actually trade it for goods and services.

Consider money velocity, courtesy of Chartist Friend from Pittsburgh:

http://www.oftwominds.com/photos2012...locityCFFP.png

The velocity of money buried in a hole is zero.

The velocity of hoarded money is also zero.

The velocity of credit that is never used (i.e. no money is actually borrowed and spent) is also zero.

Money that is created but which has zero velocity cannot spark inflation.


If money were flowing into real-world households, we'd expect to see household incomes rise. Instead we see falling incomes. Here is the real (adjusted) income for the 45-54 year old age bracket, when lifetime earning tend to peak (courtesy of dshort.com):

http://www.oftwominds.com/photos2012/income-45-54.gif

Ouch. Income, Poverty and Health Insurance Coverage in the United States: 2011 According to the Census Bureau, "In 2011, real median household income was 8.1 percent lower than in 2007."
If there is net expansion of the base money supply, it isn't finding its way into household incomes where it could be spent on real goods and services.

As for the "wealth effect," it only affects the 5% who own enough equities to make a difference. That narrows the whole "wealth effect" to 7 million people out of 142 million workers.


http://www.oftwominds.com/photos2012...parity8-12.png



Interestingly, the top 5% is the only demographic that is actively deleveraging, i.e. reducing debt rather than borrowing more:

http://www.oftwominds.com/photos2012/debt-divide2.gif

Add all this up and here's what we get: money is not just being created by the Fed, it's being destroyed by declines in asset valuations and writedowns of impaired debt. Credit may be expanding but the top rung of households is paying down debt, not borrowing more, and the bottom 95% are unable to add much to their already staggering debt load.

Incomes are declining, providing a smaller base for both spending and borrowing.

The top 5% may be experiencing a "wealth effect" as stocks soar but 7 million people cannot levitate the entire $15 trillion U.S. economy much while the incomes of the 137 million other workers are stagnant or down.

Money velocity is plummeting and banks are hoarding Treasuries as much-needed collateral.

It's difficult to see how these forces could generate inflation. There may be new money and credit being created, but very little of it is flowing to households whose spending in the real economy drives inflation.
New video program: The Federal Reserve: Flawed Premise, Mistaken Role:
http://www.youtube.com/watch?v=wwSml..._embedded#t=0s

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Op Ed:
Catherine Austin-Fitts contributes the following as an insertion into the above discussion:

the current inability to create inflation in our era of reduced cost of labor, is totally thanks to moving jobs offshore phase which have driven down labor costs' component.


Who are the pundits who say gold doesn't go up in periods of deleveraging/deflation? Have they looked at any gold charts in the last 13 years?

Yes yes yes Beefie, everyone here understands this. Inflation in the real economy will only occur if FED new money gets to Main Street. For now, the FED balance sheet will explode higher as it continues to prop up the big zombie banks whose balance sheets are dead. So what! Some may say gold is only anticipating inflation that may never come. Well let me provide a metaphor that speaks to the triple questions of monetization, gold and inflation. Imagine you are living in a house on a flat strip of land. On one side is a tall dam. The dam is old and has cracks and small leaks. Yet it has held for many years. Behind the dam is an ocean of paper IOUs. The FED keeps pumping more IOUs into the dam. Yet your strip of land stays dry. But the wall gets higher and more unstable each day. On the opposite side of your home is another dam. It's wall is also very tall with many small cracksw and leaks. But it is holding. Behind this dam is a sea of IOUs, of dollars and dollare-demominated instruments held by foriegners. It is only their confidence in the US economy into the future, percieved creditworthiness, that keeps them holding those dollars. But each year the wall gets taller and develop more cracks and leaks. Now you can sit in your home, confident that these twin dams will hold indefinitely. If any dam gives way, you will be swept away in an inflationary current of worthless dollars and paper assets. Or, you can invest in some sturdy and tall beams (gold) to raise your house and make it flood resistant. You might also seal the base of your house to convert it to detachable houseboat (silver) so that if the floods come, you will float on top of dollar inflationary flood waters to safety.

For now the dams are holding.....for now.

Here's a great description of QE to infinity:


http://www.youtube.com/watch?v=hf2WAw81OqQ


(I had to use Internet Explorer to insert this video)

Hatha

Quote:

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Originally Posted by chad

2 options:

raise interest rates and blow up the debt ridden american consumer

or

print money and send our currency in to the abyss.

either way, it's catastrophic.

(i stole that, let's see who knows who said it. it's ultimately very true).

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Greenspan.