QE to Infinity a Good Bet

By Dominique de Kevelioc de Bailleul

As the world awaits the next event that sets off financial Armageddon, that event may never come, so says Gonzalo Lira, contributor to financial blog zerohedge.com.

The economics blogger posits an interesting scenario, which, if correct in the end, could provide investors of precious metals many, many years of wealth preservation against a backdrop of grinding deflation in terms of gold. So, don’t worry, take a nappy.

“So: Is the Troika crazy, under Einstein’s definition? Lira asks rhetorically. “No: Because the Troika’s aim is not to fix the Greek situation—the Troika’s aim is to prevent Greece from becoming the Lehman-like event.”

Makes sense, so far. If banks are too big to fail, sovereigns are, too, especially when the sovereigns involved can take down those other ‘healthy’ sovereigns through the interconnected global banking system long-past gone rogue.

There is no solution to Europe, ergo there is no solution to the US, Japan and any other country strapped with too much debt. Because in the end, if collateral to cover bad debt, in essence, doesn’t remotely satisfy a goodly portion of the bad debt, why bother with the futile exercise of trying to make good on it? Aren’t mortgage many lenders allowing mortgagors free housing?

“So along with everyone else, I’ve been waiting for Lehman—and fruitlessly trying to guess which will be the Lehman-like event this time around,” Lira continued. “Will it be the bankruptcy of Dexia? BofA? UniCredit or SocGen or one of the Spanish banks? Will it be a war in the Middle East? Bad producer index numbers from China? A fart by a day-trader in Uzbekistan?”

Bogus stress tests that showed how bogus they really were following the collapse of Dexia; overt criminal transactions by BofA involving the transfer of tier-3 assets from its Merrill Lynch subsidiary to BofA parent company to qualify for a FDIC bailout; not allowing Greece, with its 180-percent-yield bills, to have a decent funeral; and the endless ‘in-your-face’ fraud committed by the US Fed at the currency swap window and rigged Treasury auctions, and hundreds of other incidents of significant import or not, gives a lot of credence to the Lira thesis.

How many articles and news programs will it take for everyone to figure out that since January 2010, the fear of contagion from a Greece default has already infected all the PIIGS and the economic powerhouses of Europe, Germany and France? The global financial system has collapsed. The ECB buys Italian bonds, France is poised for a downgrade, and Germany experiences its first failed auction. Nothing happens; the euro rises.

“This is exactly what the Federal Reserve, the European Central Bank, and the assorted financial bureaucrats will do with every other major sovereign debt that is out there: They will keep on lending it money, so long as it prevents a default,” Lira stated, adding that central banks will do anything to achieve the goal.

“And when I say ‘absolutely anything‘, I’m not using hyperbole: Fuck principles, fuck the law, fuck legal constraints, fuck even basic long-term economic and fiscal health—or sanity,” Lira continued. “The clowns running the circus were so freaked out by the effects of the 2008 Lehman bankruptcy and the domino-effect that it triggered, that they will not let it happen again—ever. Come what may.”

The global financial system is broken. So what? Just print the money—no matter where it comes from and the legality surrounding how its created or given to those institutions—in perpetuity. Allow banks in Europe and the US to mark-to-model its tier-3 debt for as long as they wish, let them game the overnight market—and let the stocks trade at a fraction of their book value. The market already knows the books are cooked. So what?

Veteran gold market trader, Jim Sinclair, who sports the monicker Mr. Gold, agrees with Lira on the point of printing money. For years, Sinclair has stated that the global financial system is so leveraged, so broken and so corrupt that the only option central bankers have is to print money until something breaks—then print some more to ‘fix it’. “QE to infinity is unavoidable,” Sinclair repeatedly states on his financial blog JSMineset.com.

And as far as the astounding number of crimes, involving trillions of dollars, gone unpunished? Occasional prosecutions as a way of throwing some red meat to the mob will come along from time to time, but if we think about it, central banks need these pirates to carryout the QE-to-infinity strategy. So, after another bank stock comes under attack for careless bets made by a ‘rogue trader’, send the “clown” to jail, and, you guessed it, print the money. Let the clanging of pots and pans in the streets of Europe and America begin.

“The central banks and the government authorities and regulators have made it clear that they will do absolutely anything to prevent this outcome: They will prevent a Lehman-like event from taking place, no matter what,” Lira restated.

“In other words, they have made things predictable for us all.”

But Lira concludes by admitting that, of course, he could be all wrong. But does it matter? Get the gold.