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Wednesday, April 23, 2014

Why The Dollar is so incredibly vulnerable to attack:

Fed now the largest hedge fund in the world
Why the former head of the Federal Reserve's QE trading room owns gold

Andrew Huszar, formerly a managing director at Morgan Stanley and the man who set up the Fed's trading room to run the quantitative easing program, now believes that the Federal Reserve has set a dangerous course for America and the world. In this surprising interview at King World News, he reveals the Fed's deep involvement directly in markets and explains why he now includes gold in his own investment portfolio.
"I think when you see the Fed go from having a balance sheet of $800 billion to $4 trillion in the span of five years, and pump over $4 trillion of cash into Wall Street, you've seen a lot of cash liquidity flowing throughout the world. I would argue that the markets have become addicted to the liquidity that the Fed is pumping out there.
So when you pull back any punchbowl this big you are going to see substantial issues. (or when the punch bowl is pulled away) We saw this first last summer when the Fed initially talked about a taper and we saw a $5 trillion global equity market selloff. In January, in anticipation of the second QE cut by the Fed, you saw more volatility in the emerging markets.
I think what you are going to see in 2014 is the unintended consequences of this stimulus hit as the Fed tries to pull it back. ... At this point the Fed effectively owns 30% of the US Treasury market, it owns 10% of the housing market, it has become what is effectively the biggest hedge fund in the world.
You have a lot of hawks on the Federal Open Market Committee (FOMC) who are confident they can pull back (on QE). I think the Fed will be surprised again -- by what happened in the emerging markets, for example, spreading to the US markets. I believe the idea that the Fed would finish QE by the end of 2014 is unrealistic.

The volatility in the markets will be a rollercoaster ride. If the Fed really sticks to its guns, I think we could see a 20% - 30% selloff in the US (stock) market pretty easily in the course of a few months. ... If the market really believed that central banks around the world were going to step away meaningfully, and there was no so-called 'Greenspan/Bernanke/Yellen put' in the market, I believe you could see far more dramatic declines."
Huszar also points out that the Fed is now buying 90% of newly issued mortgages and 70% of newly issued government debt.

What happens when value of the dollar plummets as it loses its reserve status?

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