Here's why the FED can't stop printing.

1. All talk of an economic recovery taking place in the US is a big lie. The most recent horrid NFP report drives the point home, but even at that, it still falls short of telling the whole story. The "improvement" in the unemployment rate is strictly due to unemployed falling out of the labour force (it's the denominator that's changing) and unemployed leaving the unemployment ranks (and hence the unemployment statistics) and moving over to disability benefits. The number of people not in the labour force is now at a stunning 87.9 million. Anyone who thinks the US economy is getting better, just think about that for a minute…..then stop and ponder about 45+ million people on SNAP.

Most of the other indicators have also been very weak, once you bothered looking under the surface. Initial claims have printed a miss to consensus far more often that they've beat, and were a miss for the last three consecutive reports. The latest Chicago PMI missed, printing at 62.2, down from 64.0. New orders dropped and input prices increased substantially from 65.6 to 70.1. Whatever growth there is seems to be coming from inventory build-up. Durable goods were a miss printing at 15 of 17. The headline print was 2.2pc to a total of $211.8bn, on expectations of 3.0pc, up from a revised -3.6pc decline the first of the year. Consumer confidence fell but met expectations. Expectations of inflation were at the highest level in six months and jumping considerably from the previous month. The last  Richmond fed missed expectations, the highest miss in 10 months. Case Shiller reported home price declines for the 9th consecutive month. The most recent Dallas fed mfgr outlook printed its biggest miss in 9 months, and the biggest single month drop in 7 months. I can go on, but I think you get the point and I have probably lost benny the clown with the "figures" sufficiently enough.

All the noise from the last FOMC minutes about not doing more QE unless the economy worsens is based on two things. One, the FED who has access to the real data knows that the economy is worsening, so doing more QE down the road doesn't violate their statement, but rather support it. And second, and by far the most important factor, the FED who again has access to the real numbers, sees that the inflation monster is metastasizing into double digits. You can only substitute, remove, eliminate, and ignore weight-outs to manipulate and distort the official inflation low only for so long. And then there's OIL which makes the inflation monster all that move evident every time the gullible lemmings fill up. The FED is trying to jawbone the inflation monster back in its cage.  Good luck with that……if they can't raise interest rates because that automatically bankrupts just about every financial entity on the planet, you can't rein-in inflation. It's that simple.

2. The housing market in the US hasn't bottomed, which will put additional strain on their banking system.The FED will print to cover the gap. That's their first true mandate, to keep the financial system afloat. There are over 9 million units coming into the market now that the robosigning scandal has been favourably settled by the banks. There are another almost 10 million units in "default territory" (three monthly payments is arrears). Many of those will end up being foreclosed on. There will be no bottom in the market until this inventory clears the system.  Combine this with persistent high unemployment, reduced median wages and a substantial increase in the cost of living through inflation, a second wave of mortgage defaults and foreclosures are a certainty . Throw in the mix an increase in consumer credit card debt that is strictly due to people using it for day to day sustenance, a student loan debt mountain that has reached monstrous proportions (now over one $ trillion) that is ready to pop, municipal and state debt that hasn't been addressed, and the writing is on the wall. It's not a matter of IF the banks will need shoring up again, it's a matter of WHEN.

3. The EZ crisis hasn't gone away, and contrary to what signor Monti is trying to convince the world, it is actually getting worse, not better. Which means the EZ banking crisis continues (I won't elaborate here on what's going on with EZbanks/ECB/EFSF/ESM/LTRO as this post is already too long), which means the global lender of last resort will come to the rescue again with FX swaps, or in other words, the FED will print USDs.

4. The second FED mandate is to keep funding the US government ( Those who thought the FED's two mandates were price stability and unemployment, well, think again). The CBO is reporting USG deficits in the range of $1.5 trillion as far as the eye can see (10 years). The US debt is growing at $4.1bn per day, an incredible $154 million per hour. Their unfunded liabilities are growing at $18.2bn per day,  a mind numbing $757 million per day…..(try and wrap your head around that when you're trying to decide where gold is going). The FED bought 61pc of USG debt in 2011. Their 2012 deficit, excluding off balance sheet guarantees (think GSEs here), are projected at around $1.5 trillion. Who will have enough growth in this environment to buy about a trillion of US debt in 2012 to replace the FED if they stop printing, at the same time when about another two trillion of debt around the globe needs to be rolled over. If you said NO ONE, not possible, you'd be right. This is not conjecture, it is basic math.


The FED will print……THERE'S NO PLAN B.



P.S. And if at this point, I need to explain where Gold is going and why, you wasted your time reading this post.


P.S.S. What do think benny the clown, up or down? Quick mate, your thumb is starting to dry up…….