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JonSCKs...Fed to monitize 90% of new debt
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Posted 12/4/2012 11:22 (#2732385 - in reply to #2731791)
Subject: Okay.. cleared schedule now I have some time

Here's the deal..

In 2007.. Corn was trading at.. $4.00, Ag Land fetched.. $3750.. US Housing brought for an Average home.. let's say $350,000.  The Dow was at 12,660, Gold fetched $838.. and the Dollar Index traded at 84.34

Then the Crash...

By Jan 1 2009.. Corn was $3.79, Ag Land.. $3850 but US HOUSING had collapsed to say.. $250,000, The Dow crashed to 8,000 and Gold fetched $922.. and the Dollar Index traded at 86.46.. (in a flight to safety.)

Enter the Fed..

From the Fall of 08 through about the middle of 11 the Fed injected about $2 Trillion into the economy.. they could do this because a) the Velocity of the money supply collapsed.. b) Our currency held it's own as other countries basically did the same thing.. c) THEY HAD TO.

That helped (by design) prop up the Housing market and the Stock Market...

Today we have Housing Stabilizing at say.. $275,000 and the Dow is back to 12,900..  We didn't see inflation because everyone was losing or fearful of losing their jobs.. and when you WHACK over $100 k from the average price of a home.. that leaves ALOT of room for other prices to go up.. in fact the FED probably is still MORE CONCERNED ABOUT DEFLATION than INFLATION.. although that pendulum may/will at some point swing..

IN AG.. we didn't have a bust.. so the Stimulative effects of the FED went STRAIGHT to the bottom line.. that is why today we have Corn at $7.50.. almost double what it was before the injection.. HOWEVER, WE ALSO have an almost doubleing of the PRODUCTION COSTS of CORN.. from $2.85 to probably somewhere around $5.50..  Thus if CORN PRICES FELL to $5.00 then PRODUCTION WOULD FALL.. and we'd be talking about a 10 Billion bu crop vs a 14...

Ditto the Gold.. now at $1720 vs it's peak.. at $1900 in the summer of 09.. about the time the Fed was WINDING DOWN it's injection.. and turning OFF the printing presses.. see chart above.

SO IN EFFECT.. Joe Public has seen his house fall by $100 k.. but inlfated by injections from the Fed..

"uhum.. you don't mind if we double the price of your corn flakes in order to save equity in whatever value the dollar becomes for your house.. do you?"

His house has stabilized at $285... ("whew")  His 401k has come back.. and he pays more for Cornflakes in the morning.. and Gold if he buys that...  Most people don't buy a lot of Cornflakes.. so that's not a big deal to them.. ditto the gold..

NOW.. going forward..  Bernanke has been the Magician pulling Rabbits out of his hat.. which the investing world has been eating up.. "ooohh.. AAAhhh.. ooohh..."  but if your notice he's got a little sweet running down his brow.. as he turns to the other entities.. the Administration and Congress... "psst.. HEY GUYS.. I'm RUNNING OUT OF RABBITS.."

The PLAN.. is for the Fed to SHRINK it's balance sheet BACK DOWN to the long term uptrend which matches the growth of the economy.. in the 1980's.. Volker had to bring a club.. (as rabbits can reproduce.) to take care of the overpopulated rabbit problem...  We're not to THAT point.. yet.

IF things go AS Planned.. and the economy gets going again.. and housing and the stock market can stand on their own.. THEN the Fed can start to remove the Kool-Aid (it wasn't toxic.. to this point) and shrink it's balance sheet..

BUT UNCLE SUGAR.. will NEED to find someone else to FLOAT it's Debt.. as The Fed.. will not be there.. so we are in a period of transition as the Fed removes itself and the market takes it's place.. whether or not there's a bunny problem remains to be seen.

Since the US is growing it's OWN FOOD and Growing MORE of it's OWN DOMESTIC ENERGY.. then the dollar index could do whatever.. and since we pay for our own food and own energy in our own currency it doesn't matter...

IF SOMEONE ELSE.. say China.. fixes it's house FIRST.. and it's currency APPRECIATES vs the dollar.. say it doubles... then CHINA could buy CORN for $15.00 US Dollars.. and the price of Corn flakes would double again...

IF we both recover at the same pace.. then the Price of Corn flakes could come down..

jmho.. and thoughts.. and flat out guesses of where we are/have been/and could be headed...

I'm probably WRONG on some if not all of my assumptions.. but obviously don't know which one(s)...


ps "Not a solicitation to trade.. people can and do lose $$$.. both the inflated ones as well as the declining ones..."

ps.. Edit add:  On the fiscal side Boehner has already offered increased tax revenues.. The O administration wants increased tax rates along with revenues.. (not sure you get more revenues from increased rates..??  You do up until the crash point.. aka see 2008)  This alone will help cure "the bunny problem".. see the post above about increasing Health care Taxes..  As noted.. Bernanke has served notice that the FED is removing itself from buying debt.. so Washington will need to find a new banker.. or the investing public must step up to the plate.. (or both)  Or WE STOP RUNNING LARGE FISCAL DEFICITS... but you have to step that down over time or you'll crash the economy.. so.. lot's of variables in play..

edit add: PSS.. What the Fed did was a stealth Tax Increase.. Joe (Biden) public thought that THE RICH was going to pay more for everything..(and they are..) the thing is if you buy Corn Flakes.. or Gold.. or about anything you can find at a Costco.. it now costs more...

PSSS.. Mitt saw Joe at the local Costco and just told him what I lined out above..

Now.. I yield the floor..

Edited by JonSCKs 12/4/2012 11:56
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