The Fed Resumes Printing
February 8, 2012 6:02am EST by Jeremy
Filed under: Guest Bloggers
If you haven’t heard by now, the Fed is back at it! Bud Conrad of Casey Research has written a great article on how it is affecting current markets and what to expect in the near future. Be sure to take a look and comment below with your own thoughts. For more from Bud and Casey Research click here.
The Federal Reserve recently announced important policy changes after its Federal Open Market Committee (FOMC) meeting. Here are the three most important takeaways, in its own words:
- The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
- The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. In the most recent projections, FOMC participants’ estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent.
- The Fed released FOMC participants’ target federal funds rate for the next few years.
Immediate Reactions
The first item is the most important as it was not expected – and it had an immediate effect on markets. As seen in the chart below, gold spiked higher on the surprise news of extending the zero-rate policy through 2014.
The news prompted a similar jump in silver services:
Keeping rates low requires the Fed to print new money to buy Treasuries, so the dollar weakened against the euro, although the reaction wasn’t as big as in those in the gold and silver markets. This is partially due to the fact that the ECB is on its own campaign of printing money.
The promise to keep short-term rates low for a longer period also caused longer-term rates to fall slightly, as seen in the 10-year Treasury rate chart below, which fell from about 2.05% to 1.95 %, a relatively modest decline.
What Does This Say about the Fed’s Policy?
By Nigam Arora
The breaking news is that the Japanese Ministry of Economy is planning to cut dysprosium demand by over 30%.
Dysprosium is a rare earth element.
This is a negative for Rare Element Resources Ltd.REE -1.33% as it reduces demand. Rare Element is a miner of rare earths.
Rare earths is a misnomer as these minerals are plentiful in nature.
Dysprosium is used in making hard disks, lasers, advanced lighting, nuclear reactor control rods, dosimeters, Terfenol-D, and transducers.
Last year, rare earth stocks such as Rare Elements, Molycorp MCP -0.36% and Avalon Rare MaterialsAVL -0.63% had run up in an emotional frenzy. Now they have come down to earth, but there is more room to fall.
Dysprosium is an element that has a metallic, bright silver luster. It is soft enough to be cut with a knife and can be machined without sparking
The name rare earth metals commonly refers to 17 chemical elements, specifically the 15 lanthanides plus scandium and yttrium. These elements are used in manufacturing a wide variety of industrial products such as magnets, lasers, batteries, high refractive index glass, fluorescent lamps, and catalysts for oil refineries.
Gadolinite, a silicate mineral, which consists principally of the silicates of cerium, lanthanum, neodymium, yttrium, beryllium, and iron, was the first rare earth mineral to be discovered in 1787, at a quarry in the village of Ytterby, Sweden. Over the next 150 years, the world came to know of all the present day rare earth metals through a series of discoveries.
India and Brazil were the major sources of rare earth metals until 1950. In the 50's, South Africa became the largest producer of these metals. The U.S. took the lead in 1965 with large scale operations at the Mountain Pass mine in California. In 1998, chemical processing at the mine was stopped after a series of wastewater leaks. The mine closed in 2002 due to environmental issues and falling prices of rare earth metals. Prices had been steadily falling as China emerged as a major competitor. China had the advantage of lax environmental standards and low wages in its huge mining operation in inner Mongolia. In 2009, China supplied approximately 96% of the world's rare earth metals.
20 comments:
I am most curious about the prospect of negative interest rates, not more money printing. That was brought up on ZeroHedge, and Max Keiser also talked about it with Gonzalo Lira on the Tuesday version of his show.
What that would mean is that if you wanted to buy a $10,000 Treasury Bill, the .gov would guarantee to pay you back only $9,900, or somesuch amount. If you deposited your money in a bank, the bank would charge you 2% or somesuch fee just to hold onto it for you. Ideas like this are being seriously discussed, because the "zero bound" of interest rates -- as put in practice by unlimited money printing -- has not done anything to stimulate the economy.
But if you had to PAY to keep your money in a bank, why would anyone do that? Better to keep your money in the cookie jar. That would seem to hurt rich people, because they can't just stick $100 million in $20 bills inside their mansion. If you were going to LOSE money on T-bills, why would anyone invest in U.S. .gov securities? That would be great for any country that was going to pay actual interest.
It would be a good way to eliminate the national debt, though. Raise the debt ceiling by $1 trillion and only owe $900 billion. But who would touch a U.S. dollar that was being officially decimated?
I don't know if negative interest rates have ever been tried in the history of the world. As Max Keiser put it, it would be another form of official theft like MF Global, where the people with power just said "We're going to steal from you? What are you going to do about it?"
I can see how stashing your cash in the mattress would not be a solution, because the government could say "We're replacing all the green paper money with blue paper money, and we're only going to give you nine of the new bills for every 10 of the green ones that you turn in. After next month, the green ones will not be legal any more." They could also make it illegal to sell precious metals, so if you wanted to do that, you'd have to do so on the black market. That would make YOU a criminal, and you'd be dealing with other criminal elements, with all the risk of them putting a gun in your face and stealing the gold/silver from you.
Things are getting freaky. It's like the dominant direction that officialdom is pushing everything is toward destruction of all organized structures. LET'S BLOW ALL THIS SHIT UP! I'm not sure if negative interest rates will come to pass, but it boggles my mind just to game out the ramifications of such an idea. The fact that it's being discussed is an indication of how far we've gone down the rabbit hole of weird conceptions.
The citizenry of the United States is being treated like Iraq. President Cheney had great plans for how he'd go in there and scramble Saddam;s existing order, but not a clue on how he'd keep things operating after the initial attack. He didn't care, though. It was only the little people whose lives were getting smashed. For the Owners of society -- the people who WE are not -- it's like the amount of thought we give to ants when we're stepping on them on the sidewalk.
It looks like Greece's 'sugar-rush' lasted only a day.
Down we go!
All in? Well, according to the Oracle of Omaha you should be. According to a Blackrock (2) advisor you should be 100% in.
I always find it interesting when everyone pushes the same viewpoint. Guess that is why I am a cynical, contrary old mule.
That said, WHY do I feel like the 'push is on' to get everyone back into the game? Do they know something we don't know? (Well, of COURSE THEY DO judging by the MF Global debacle.)
Ah well, another day of screaming spin punctuated by the sight of a Woolly Mammoth in Siberia...tell me, have you been somewhere where you ought not to be lately, Mammoth??
Bukko I can understand your fears about negative interest rates and making it illegal to sell PM, but I really don't see that happening. They are trying to unwind all the bad paper in the system and at 0% they have a chance. If they lower rates more or they exchange 9 for 10 it will IMO create another wave of deflation. If the poor cannot pay, prices will come down.
As for trading PMs being illegal I cannot see how this can be accomplished. The political backlash would be severe. There would be huge arguments about what would be constituted as legal and what is illegal. Even when Roosevelt signed the law a lot of coins were not outlawed.
I am off to sell my Canadian Silver Wolfs at a 40% profit and will comment more later on the Roosevelt thing.
The exchange or change of the color of cash recently happened. I always assume that is to prevent counterfeiting due to high tech computer printing and catch drug dealers hold large stashes of cash.
I am back and felt good about this trade. Have you noticed the pens they use now to tell if a 20, 50 or 100 bill is counterfeit? The bills have hidden pictures in them as well that you can hold up to the light and see a cheap fake. Must be a lot of printing money by criminals and not just by The Fed.
CL I think today might be a nice dip for the PMs. Hope I didn't hurt your feeling about writing checks yesterday. It only bothers me in the check out line in the grocery store. However, I never thought about how many man hours it takes to process one check. There should be a study on it. I also pay medical bills by phone with a CC. My option with the utility bill is to do an ACH payment by phone and it cost me nothing and no human is involved.
It is such a beautiful day the I cannot be gloom and doom today. Some days you just have to be grateful for what you have and not worry about what you don't have.
Today's dip in PM's now looks 'V'-shaped. My gut feel is that next week they will move down.
Look at Greece, and their weekend of strikes over the austerity measures. This is causing the whole financial sector to wobble, and something tells me this will continue for a while.
-Mammoth
Brent Cook Audio video on FS.
Why Junior Mining Stocks Represent the Best Value in the Gold Mining Space
Brent Cook on turning rocks into money
Mammoth I agree and although I am looking for a dip in gold I am selling my silver. Not all of it as I am keeping the ASEs. They are easy to sell over spot.
CL-you didn't hurt my feelings but having just spent a frustrating time TRYING to get into MY government T-note account, calling them, and then trying again only to get TRY LATER, they can take COMPUTING ONLY bills/payments/etc. and $%^&^*^&*^*&*(&(*)(_!
First of all, unless the government is providing a computer for everyone with all the latests updates, etc. how can they require this. We had the same problem trying to get hubby's W-2 today. (It has NOT been a good day). They CAN'T mail out a W-2. Hmmm. But isn't that required by the IRS? So no one at this HUGE HOME IMPROVEMENT store company can access a simple file? And if couldn't file taxes because of this, wouldn't they still come and lock me up??
When the lights go out and the aliens descend from there space ships and take out all our grids there are going to be some unhappy people....grrrrr
By the by, this may make me allow all my notes to mature and never reinvest, although I'd still have a problem with my savings bonds....
Got me coming and going.
About FDR and GOLD from Wikipedia
Executive Order 6102 required U.S. citizens to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 (equivalent to $350.43 today[3]) per troy ounce. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of the order was punishable by fine up to $10,000 ($167,700 if adjusted for inflation as of 2010) or up to ten years in prison, or both. Most citizens who owned large amounts of gold had it transferred to countries such as Switzerland.
There was only one prosecution under the order, and in that case the order was ruled invalid by federal judge John M. Woolsey, on the grounds that the order was signed by the President, not the Secretary of the Treasury as required.[5]
The circumstances of the case were that a New York attorney, Frederick Barber Campbell, had on deposit at Chase National over 5,000 troy ounces (160 kg) of gold. When Campbell attempted to withdraw the gold Chase refused and Campbell sued Chase. A federal prosecutor then indicted Campbell on the following day (September 27, 1933) for failing to surrender his gold.[6] Ultimately, the prosecution of Campbell failed, but the authority of the federal government to seize gold was upheld.
The case forced the Roosevelt administration to issue a new order under the signature of the Secretary of the Treasury, Henry Morgenthau, Jr., which was in force for a few months until the passage of the Gold Reserve Act on January 30, 1934.
continued below
The myth of a safe deposit box seizures order
According to a folk rumor on the internet, President Roosevelt ordered all the safe deposit boxes in the country seized and searched for gold by an I.R.S. official. A typical example reads:
By Executive Order Of The President of The United States, March 9, 1933.
By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, in which Congress declared that a serious emergency exists, I as President, do declare that the national emergency still exists; that the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice, and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people.
Therefore, pursuant to the above authority, I hereby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possessions of gold and silver be tendered within fourteen days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government.
All safe deposit boxes in banks or financial institutions have been sealed, pending action in the due course of the law. All sales or purchases or movements of such gold and silver within the borders of the United States and its territories and all foreign exchange transactions or movements of such metals across the border are hereby prohibited.
Your possession of these proscribed metals and/or your maintenance of a safe deposit box to store them is known by the government from bank and insurance records. Therefore, be advised that your vault box must remain sealed, and may only be opened in the presence of an agent of the Internal Revenue Service.
By lawful order given this day, the President of the United States.
Franklin Roosevelt – March 9, 1933
Most of this text does not appear in the actual Executive Order.[12] In fact, safe deposit boxes held by individuals were not forcibly searched or seized under the order and the few prosecutions that occurred in the 1930s for gold hoarding were executed under different statutes. One of the few such cases occurred in 1936, when a safe deposit box containing over 10,000 troy ounces (310 kg) of gold belonging to Zelik Josefowitz, who was not a U.S. citizen, was seized with a search warrant as part of a tax evasion prosecution.[13] Approximately 500 tonnes of gold were sold to the U.S. Treasury in 1933 at the rate of $20.67 per troy ounce.[14] although other sources refute this amount stating that 56 tonnes (1.8 million ounces) as a more accurate amount [15], based on calculations using US Treasury data as well as from Milton Friedman’s book, "The Monetary History of the United States".
The U.S. Treasury came into possession of a large number of safe deposit boxes due to bank failures. During the 1930s, over 3,000 banks failed and the contents of their safe deposit boxes were remanded to the custody of the Treasury. If no one claimed the box, it remained in the possession of the Treasury. As of October 1981, there were 1,605 cardboard cartons in the basement of the Treasury, each carton containing the contents of one unclaimed safe deposit box.[16]
All this and more can be found at http://en.wikipedia.org/wiki/Executive_Order_6102
Of course gold bug sites will challenge this and I think that gold ownership is too significant and only a moron would give up their gold for the gov't to try this again. It is unenforceable.
Here is a question I never understood. Why is the US mint coining a Gold Eagle with a value of 50.00 and then selling them for 1900.00? Why not just leave the value as blank since it is obviously not worth 50.00?
Too easily copied, maybe??
It has NOT been a good day here. Warren Buffett, however, is making out like a bandit.
I'm duct taping my mouth so as not to infringe on the Hive's non-financial/OT political musings and start ranting, but I gotta tell you that (to quote THE AMAZING RACE WITH TONY CURTIS AND NATALIE WOOD) "the water has reached my lower lip and I'm going to mention it to someone." And, since we seem to be losing freedom by the minute, I'm going to go tell my Teddy Bear a thing or two ;-)
CL, feel free to remove the duct tape and speak your mind, after all you are among like-minded people here.
- - - - -
Sending an IRS agent to oversee the pilfering of safe-deposit boxes would be akin to sending a photographer to take pictures of Sean Penn.
On Feb 12, the bank will make $40 disappear from my checking account to pay for another year of holding my safe-deposit box.
There is something ironic about this happening on the birthday of the great emancipator...
Thanks for the historical info, QB. I had long believed that FDR sent .gov agents to seize safe deposit boxes. I never bothered to read an analysis of the actual order. I had wondered about the amount of manpower it would have taken to physically jack around with all the thousands of safe deposit boxes in banks scattered across the 48 states. Logistically speaking, how could it have been done? The answer is, as shown by your citation of the actual facts, is that it wasn't.
That makes me feel more secure. Because I had been worrying about March 20, the day (last I had heard) when it's make-or-break for Greece, when the euro might collapse and a new financial panic could set in. Perhaps I won't be paying a visit to the vault for just-in-case purposes.
Please rant away CL. I certainly do and it not always about financial things.
Bukko, there have been lots of rumors about gold confiscation by the gold bug sites. Glad that my research made you feel better.
I just got back from the local coin dealer after selling those Silver Wolves earlier. It was a win win as APMEX was selling them for 63.50 and I sold them for 50.00. I traded in the silver bars (at a loss) for 2 maples, a krug and some cash. Now I have traded or sold silver I didn't want and replaced it with gold. Don't worry I am not off silver as I still have a lot of ASEs. I think silver has a lot more upside than gold, but I don't like riding a bronco. I prefer a pony ride.
Another idea is a drop safe and they gave me the number of a locksmith, but somehow I feel ok paying 50.00/year for keeping it in the bank. I just wish safe deposit boxes in the US were guarded as securely as they are in Switzerland.
Post a Comment