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October 13, 2010

Forget November 2, Watch out for November 3rd!

"November 2nd is a big day for the U.S, but November 3rd concludes the Federal Reserve's two day meeting and market expectations are quite shocking."

We have now learned that market participants almost unilaterally expect the Federal Reserve to intervene further and purchase more treasury bonds through Quantitative Easing (QE) following November 3rd's meeting. According to CNBC, 93% expect the Fed to increase QE in the near future, this is up from 70% last month. In addition to this, almost all (86%) of those who said yes believed it would happen in November versus 38% in the previous survey. Other participants believed that the Fed would wait until 2011 to restart QE.

This begs the question; what will happen to the markets when the Fed announces further debt monetization (the printing of money to pay for debt)? How will the markets react if the Fed decides not to expand its balance sheet further?

Some (like John Brady in today's video) believe that the Fed is under tremendous political pressure to do something. I hope this isn't true as history is full of governments that have killed their currencies and economies because of the marriage of government and central banking.

Furthermore, nobody has discussed if the Fed's actions will actually help the situation. One economist (Diane Swonk, in the video) actually wrote that the Fed is the stimulant of last resort and not a good one at that.

Maybe we need to finally wake up and look at the tough decision that needs to be made. Do we want a currency collapse along with widespread, long-term economic chaos or do we want to risk another Great Depression?

Personally, I'll take the Depression.

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