Cash is Crack, Get Gold

What will be the straw to break the camel's back? The answer to that question is rarely known without the benefit of hindsight after which it is usually as obvious as it is useless. Currency collapses have historically been sever overnight events precipitated by intense inflationary pressure over time. Given the latter it is always a dunk shot to predict the former, but plucking out that particular night can be tricky. But last week the FED that cried the crisis, is upon us, an obvious observation that can be as useful as it is profitable if you heed it and buy as much gold or silver as possible without selling your kids into slavery.

The crisis has actually been upon us, what the FED did was begin to tug on the inflationary chains that will bring it down on you, and bring it down any time now. So, abandon ship to those of you who desperately cling to hope, abandon it too, sell, sell at a loss, sell until it hurts using the proceeds to buy gold and silver, the US dollar collapse is imminent.

The Fed announced it will print more money to finance runaway budget deficits and to keep mortgage rates artificially low. WSJ

The Fed will buy up to $300 billion in long-term Treasurys over the next six months…[Also an] additional [$750 billion of] mortgage-backed securities purchases will push mortgage-related facilities to as much as $1.25 trillion.

I mentioned the likelihood that the Fed would begin buying Treasurys in today’s first link. I didn’t anticipate the huge expansion in its purchase of MBS.

The Fed will be creating money electronically out of thin air to finance these purchases. When you buy a bond, its price rises and its yield drops. Buying another $750 billion of MBS along with $300 billion worth of Treasurys with printed money is a simple trade-off, debasing the currency so we can put a lid on the public’s and home buyer’s cost of debt finance.

This is terrible monetary policy. Keeping interest rates artificially low will encourage credit expansion when what’s needed to actually heal the economy is credit contraction. This sounds counter-intuitive, isn’t more lending what’s needed to “get the economy going?” No, too much credit is what got us into this economic mess in the first place. Asset values of all kinds are still over-inflated relative to their intrinsic value, the value of their discounted cash flows.

Credit is a drug. And the Fed is America’s dealer. We know we need to quit the stuff, but we’ll worry about that tomorrow. What we need right now is another fix in order to get through today. Our dealer, of course, is happy to oblige.

This is just a recipe for deeper and more destructive addiction and, eventually, far more painful withdrawal.

Unfortunately it's precisely that bad tasting remedy that most Americans fear more than the ailment.

Americans fear home prices will drop more sharply in the coming year, despite government efforts to resuscitate the battered real estate sector, according to a poll released on Friday.

U.S. homeowners surveyed by Reuters and University of Michigan predicted their home values would fall by 2.2 percent in the year ahead, the biggest anticipated decline in the past few years.

This predicted decline in March was steeper than the expected average fall of 1.9 percent in February.

Concerns that home value depreciation will intensify underscored the severe damage to consumer psychology stemming from the bursting of the housing bubble, heavy losses in the stock market and massive job losses.

If consumers, who account for more than two-thirds of U.S. economic activity, stay jittery about home prices, it will diminish the chance of the recession, the worst in decades, ending this year.

"Diminish the chance of the recession, the worst in decades, ending this year." Yea the recession has a chance of ending this year, but only in depression. Ya gotta love these guys, but the point is that house and asset prices in general have to decline even more, and bottom before the recession can end in anything but a depression. Don't believe it then simply look to the east where Japan's governmental micro managed economy has drifted in and out of recession for more than 20 years and has just now entered into depression. The piper will be paid.