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Author: notehound Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 459227  
Subject: Moving the goalposts to justify QE Date: 12/15/2012 2:04 PM
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Chris Martenson posted some very important observations on his blog yesterday about QE4 & the Fed's December announcement of a target unemployment rate. The link below connects directly to the piece.

The essay and labor graph contain astute observations about the game (or actually the experiment) in which Bernanke and his cohorts are engaged, including the following:

...by tying their policy to the unemployment rate, we could be in for a very long wait for the stimulus to end. The reason is that the unemployment rate has a couple of moving pieces, one being the number of people who are unemployed, and the second consisting of people who have given up looking for work, which is tracked in something called the 'participation rate.' As more people leave the labor force and the participation rate goes down, the unemployment rate goes down, too. Somewhat confusingly, as more jobs are created, the unemployment rate goes down, too. As you can see, these numbers work in opposition to each other because as more jobs become available, more people re-enter the work force.

Before the crisis struck, the participation rate was around 66.5%. But now it sits at just 63.6%, meaning that, at roughly 1.4 million jobs for each percent, a bit more than 4 million jobs would have to be created just to absorb the folks who left the labor force but presumably would like to work again. As those 4 million folks come back to work, the unemployment rate will not budge at all. It will require two full years of 150,000 jobs per month just to absorb the 4 million missing workers, which means that this QE effort will be with us for a very long time. Three to four years is my best guess, and that's only if the economy magically recovers. And I have very strong doubts about that.

This means that the Fed is most likely on track to increase its balance sheet by another $3-4 trillion. Ugh. That's 300% to 400% more money created in the next year than was created than during the entire 200 years following the signing of the Declaration of Independence.

The other part of this new QE policy is that they will continue this as long as inflation remains below 2.5%. Again, this is a very fuzzy government statistic subject compared to the usual massaging and political biases, but it has top billing as the one that is most likely to force an early termination of the thin-air money printing efforts.
However, I remain convinced that the Fed will change any rules and move any goalposts it needs to in order to continue its mad money printing experiment. Because there really isn't any other alternative at this point...


http://www.peakprosperity.com/blog/80251/qe-4-folks-aint-nor...

Yoda has promised to post his thoughts on what investments he believes are likely to outperform against a virtually never-ending Quantitative Easing policy.

Martenson provides his own investment strategy/recommendations, but restricts access to those who subscribe.

I haven't read Martenson's suggestions other than the very first part which, predictably, includes gold.

:-o
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