International Forecaster Weekly

Quantitative Easing Into Infinity

Economies continue to decline, indefinite quantitative easing, economies continue to struggle, Europe riots, everyone has the wrong opinion about Quantitative easing anyway, Gold to be worth more.

Matt Gillotti | September 22, 2012

The US and Eurozone economies will continue to decline over time. As we saw the global communities come together to announce indefinite QE we should expect to see that over time both the US and Eurozone economies will continue to decline with sporadic positive looking movements as it correctly declines until it reaches the endpoint in which the final fall will be deep and fast, maybe taking only two to six weeks. The current Eurozone form of QE with limits and the US Feds infinite QE with additional bonus support when needed should do nothing more than keep the big banks pouring the champagne while the supported markets ride higher on the false hopes and backing of the Fed. As we are clearing heading in the wrong direction for prosperity we should continue to protect our future wealth through gold and silver as we remember not to fall prey to a fictitiously sound economy and market. Gold is still at an affordable purchase price but may not be for much longer. As gold hits higher levels we should see those that can no longer afford to purchase it to start pounding the much cheaper silver as a store of wealth.

            Even with the recent Eurozone adopted QE with limits the European economies continue to struggle. With Spain’s consistent reluctance to ask for a bailout we should see the Eurozone continue to falter. As Spain has balked at the pleas from others to seek assistance they are holding out in part due to the lack of support from the citizens and the included strings attached to a bailout. As we all know, as do they, the citizens of Spain are more than willing to take the route of public rioting to make their point and have their voices heard. As Spain slowly moves toward a bailout upcoming regional elections due to take place October 21st could be seen as a political roadblock and factor into when Spain would be willing to request a bailout. In the meantime, we should expect that Spain with an already rapidly declining economy, and an unemployment rate over 23% to continue its rapid downward decent as it continues to feed fear into the Eurozone markets. With the Eurozone already in recession we must remember that any and all future Eurozone negativity could have extreme affects on the Eurozone as a whole. If for any reason any of the four, Germany, France, Italy, or Spain were to reach the point of full economic collapse the Eurozone as a whole will be dragged to a rapid death.

            As we have seen the US dollar slowly losing its reserve currency status throughout the past year with trade deals that bypass the US dollar completely between China, Russia, and Japan just to name a few, we now see that Brazil’s finance minister Guido Mantega has warned that the Feds most recent bout of QE will reignite currency wars that will have global impact. Brazil being one of the fastest growing economies in the worlds right now and a large trading partner of the US has begun to form trading alliances with China and Russia in which they will conduct such trades in their respective currencies completely bypassing the US dollar. As the US dollar is dealt another blow to its world reserve currency status we can be assured that as one blow comes and goes another is surely in the works. The US dollar’s world reserve currency status along with its run as a fiat currency is rapidly declining.


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Jim’s Opinion

Everyone has an opinion of QE3. Almost all are wrong.

What has taken place here in its size, and in an almost simultaneous international unified approach has no precedent in economic history.

QE1 and QE2 were not failures. Do you have any idea what the world would have looked like if every major bank in the Western financial world broke?

It is easy to be a naysayer and say let the banks go broke, but you have no idea how hard it would have hit you and yours and maybe gold and silver. This is not to say that Debt Monetization, which QE represents, is correct, but it was the only tool available to central banks that would create infinite cash for the Fed and Treasury to use in a totally discretionary manner. Governments, because of the size of their debt, were incapable of applying the better tool for reviving economic activity, which is fiscal stimulation. One thing for certain is the infrastructure of the USA is collapsing in front of your eyes. Dar es Salaam airport looks better on approach than JFK. Dubai is beyond description. Roads from the Beijing airport are brand new. The USA infrastructure is disgraceful for a major power. New York City roads look like "Mad Max and the Day After." However when you are the major debtor nation fiscal stimulation is simply not possible. It will not happen because it cannot happen.

Please stop listening to those that tell you QE will have no effect. They are "Ignorant to Infinity." QE3 is going to have an unprecedented effect, as it is now simultaneous and global in scope.

Please make note of all the governments that screamed at the Fed for the use of QE1 and QE2 that are now applying QE to infinity.

There will be no QE4 because QE3 is going to go on continually with a month or two off now and then. Please recognize that it is hard for markets to discount what they do not believe in and therefore by definition do not anticipate.

Know within 90 days the economic effects of QE3 will be entering markets for money and therefore the markets for gold, silver, and most certainly the dollar.

Gold is going to at least $3500. Silver will certainly perform well also. The real support for the US dollar is .7200 on the USDX and it will trade there. The euro will trade at $1.35 and $1.40.

Ron McEwen of MUX fame said it correctly: "Patience is bitter; but the fruit is sweet!"