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Thread: Jim Sinclair: QE3 To Infinity-The Final End Game

  1. #21
    Iridium mamboni's Avatar
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    Re: Jim Sinclair: QE3 To Infinity-The Final End Game

    Quote Originally Posted by beefsteak View Post
    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'
    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.
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

  2. #22
    beefsteak
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    Re: Jim Sinclair: QE3 To Infinity-The Final End Game

    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

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  4. #23
    beefsteak
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    Re: Jim Sinclair: QE3 To Infinity-The Final End Game

    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

    --------------------
    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?

  5. #24
    Iridium mamboni's Avatar
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    Re: Jim Sinclair: QE3 To Infinity-The Final End Game

    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.
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

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  7. #25
    Hatha Sunahara's Avatar
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    Re: Jim Sinclair: QE3 To Infinity-The Final End Game

    Here's a great description of QE to infinity:





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

    Hatha
    Cosmic justice is getting what you deserve.

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    Unobtanium osoab's Avatar
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    Re: Jim Sinclair: QE3 To Infinity-The Final End Game

    Quote Originally Posted by chad View Post
    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).
    Greenspan.
    “Democracy is also a form of worship. It is the worship of Jackals by Jackasses. It is the theory that the common people know what they want, and deserve to get it good and hard.”
    H.L. Mencken

    "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."
    H. L. Mencken

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