Did the Bank of England Just Kill the QE Trade?

In case you missed it, something of major import occurred today. As mentioned on the sky website (and a few others)

That something is the Bank of England announcing that it is suspending its QE efforts because of questions relating to its "potency."

This is a heck of a statement from a Central Bank. And it's coming from the one that has even outdone Bernanke's QE efforts.

Since the crisis began, the BoE has announced QE efforts equal to $598 billion. The UK's GDP is $2.43 trillion. So the BoE has engaged in QE equal to over 20% of the UK's GDP. By way of comparison, the US Fed has announced QE equal to about 12% of the US's GDP (I'm not counting Twist here).

Despite this massive amount of QE, 2.53 million people are out of work today in the UK, up from 2 million at the start of the Great Crisis in 2007. Similarly, the UK's GDP remains well below its peak.

In simple terms, QE fails to generate economic growth or jobs. End of story. The BoE spent 20% of the UK's GDP on QE (a truly staggering amount) and more people are unemployed now than when it started. And GDP has yet to get even close to its pre-Crisis highs.

And yet, the US Federal Reserve continues to believe that QE is the answer to our economic prayers. At this point they're not only ignoring history, but they're ignoring real world examples (the UK), which show that QE fails to aid the economy or jobs in any meaningful way.

Meanwhile, the cost of living continues to spike around the world. Workers have demanded wage hikes everywhere from Chicago to Germany to China. Food prices continue to rise as does energy.

There is a word for this... it's called stagflation. And it never ends well. Which is why I strongly urge everyone to prepare for tings to get much much worse before they get better.

Fundamental Recap = Implosion!

The Obama Administration has won its second term. And now that the election is over we can come to grips with the fact that nothing has been fixed and that the math is impossible both in Europe and America.

First and foremost, Greece is out of money... again.

The country is currently embroiled in a new 48 hour strike to protest the next wave of austerity measures which will be voted on today in order for Greece to qualify for the next round of bailout funds.

The bailout in question, €31.5 billion, was actually due five months ago but was not paid as Greece has failed to meet budgetary requirements. Without this money the country will run out of funds by November 16. We'll see how this pans out but suffice to say the same issues (Greece is broke and will remain in the EU as long as it gets money) are still in play. None of them are good.

Then of course there is Spain, which continues to present impossible ideas to deal with its impossible economic situation. The country currently has just €37 billion in cash lying around. With this, it somehow plans on buying €60 billion worth of bad bank assets.

This is doable over time... provided that Spain doesn't have a single other problem occur. Unfortunately, we're up to five regions requesting bailouts leaving just €3 billion in funds available for any other regions that face a shortfall (there will be more).

Meanwhile, Spanish banks continue to draw over €400 billion from the ECB... up from €300+ in June. And on top of this, the country needs to raise €207 billion next year while keeping rates low.

And then of course there is the US...

The US re-entered recession in June 2012. They are now facing the fiscal cliff again with the threat of tax hikes hitting in early 2013. They also have $16 trillion in debt and are running our fourth $1+ trillion financed by the US Federal Reserve which bought over 70% of all US Treasury issuance last year.

Speaking of the Fed, Obama's win means Bernanke's job is secure (boooooooo) at least until he decides he wants to step down... which if he has any sense he'll do so that the disaster waiting to unfold can happen on someone else's watch.

That someone else will likely be Janet Yellen, (ie, even worse) the current Vice Chair of the Fed, who is an even bigger dove/fan of money printing than Bernanke (she said that QE 3 would "benefit the world," a truly staggering claim given the increase in inflation both in the US and especially in emerging markets).

What does this mean?

Simple... the very same problems that the world faced on November 5, 2012 remain in place. And we now know that those in power (Bernanke and Draghi) favour money printing over everything else. 

So the cost of living/ inflation will continue to rise and the world will lurch ever closer to the great debt implosion that will eventually take down the financial system.

Happy thoughts indeed, Happy trading, and STAY SAFE!.... time to go buy some gold....