QE Infinity?

We’ve really resisted using this term that has been used tirelessly by some commentators as a fait accompli as QE3 ends this month.  Since the GFC we’ve had QE1, QE2, Operation Twist and now QE3 from the US Fed.  As each ended the easy money addicted sharemarket corrected and they had to start the next round of money printing to revive it.  Many (including us) think QE3 is a little different as there is so much ‘stored up’ as the velocity of money has been weak, so it may not be as quick to happen this time.   You have to admit however that there appears considerable merit to the calls for an inevitable QE4 or even QE Infinity.  There is little doubting this is a market built on stimulus over substance.  We’ve written previously of the over looked reality that more debt can (and frankly did) buy you a better GDP than the underlying fundamentals.  Likewise it is debt that is largely supporting the earnings that has the Shillers Price/Earnings ratio for the S&P500 at nearly (nose bleed) 25!  As the easy money goes away so does the support for this bubble.  And very simplistically (in this short piece) that is the essence of the calls for QE Infinity.  The Fed will inevitably bail out the next crash, and the next crash will be so severe so will the response.  The problem is, as we’ve seen since the GFC, it simply adds to the very same debt problem that brought about the crash.  And that raises the other thesis – that we can’t have QE Infinity as this is unsustainable forever.  An alternative is a failed attempt at QE4 bringing about the big ‘reset’ that many talk of too.  Gold and silver are hard assets, with no counterparty risk, that should thrive on either scenario.