You edited your comment and I thought you had said that gold was one of the assets that the banks were purchasing with the reserves but you have clarified that. So, I think what you are saying is that the banks are sitting on the reserves and not loaning them nor buying PM's, but holding on to them to fulfill their reserve requirements.
I merely edited my comment in the last post to ensure you understood I was taking issue with your claim that I said anything about the banks buying Gold.
Recall from earlier in this thread, I replied to you concerning the banks and their excess reserves ...
http://www.ronpaulforums.com/showpost.php?p=2981212&postcount=123
"Bank lending is not the only way money supply increases. Money supply also increases when banks invest their reserves (it is the money supply equivalent of lending).
While the banks have been much more conservative in investing their reserves than most of the gold bulls in the media have claimed, there is some investing/lending happening here. We know this because excess reserves are declining modestly (relative to total reserves) and required reserves are increasing modestly (relative to total reserves). This is money entering the economy. The result has been once again (after a lull) modest increasing money supply in the past year."
Thus ... banks are not holding onto these massive levels of reserves to meet their reserve requirements (this makes no sense). Required reserves are low ... excess reserves are high. I stated there is some amount of lending/investing by the banks as evidenced by the monetary stats cited above. However, they are keeping a substantial amount of excess reserves as they are being paid interest by the Fed on reserves and they are fearful of the quality of assets on their respective balance sheets. Hence, they are keeping a healthy amount of excess reserves on hand.
There is no evidence to suggest that the banks have been buying Gold. But I have not taken a position on this. I am merely stating that the banks are holding most of their reserves ... but have been lending/investing a modest amount as evidenced by the monetary stats.
What exactly are the banks doing with the quantitative easing monies?
Mostly holding them as reserves. There is some lending happening. There is some investment (purchases of securities) taking place. I would venture to say that most of the investment is in treasuries (mostly short to intermediate term) ... but I am sure there is some equity investment.
This $600 billion that Benanke is pulling out of thin air; isn't that created on the backs of the American taxpayer?
It depends what you mean by that. Certainly it debases the currency. The purchases result in an immediate increase of narrow money supply (M1) as the purchases are made from the primary dealers.
If so, how does the Fed justify purchasing bonds on the market at the expense of the taxpayer? Is the debt to the public to be wiped out when the Fed extinguishes the reserves?
I am not going to defend the QE actions of the Fed as I believe they are misguided and wrongheaded.
However, you do understand that we would not have our current monetary system without the Fed purchasing assets (it should purchase assets of no less quality than US treasuries ... and has ... at least traditionally ... but no more), right? This is how money comes into existence in our monetary system. So, if you understand this, you will understand that your first question in the above paragraph must be reworded (changed significantly) if you were to ask this question of the central bank establishment and engage in a meaningful discussion.
Why would you think that extinguishing reserves would repudiate the government debt? This simply lowers the quantity of reserves in the banking system. Reserves are extinguished when the Fed either 1) sells the purchased treasuries back into the marketplace or 2) allows the purchased treasuries to mature (obviously this is passive and requires no action by the Fed). In #1, obviously the debt still exists ... someone else now owns it. In #2, the US Treasury has made good on its principal payment (repaid the loan). The Treasury can then choose to lower outstanding debt (by doing nothing but simply repaying the principal) or issues more securities in another auction (which it always does) to replace the debt (debt rollover).
Of course the Fed can also extinguish reserves by selling (or allowing to mature) other assets held on the balance sheet (Ex. MBSs) ... I was keeping it simple.
Also, you did say that gold on Friday pulled back because speculators such as yourself took profits. That means you and millions of other other speculators are unknowingly working together buying and selling. If you and other speculators are causing the market to fall when you sell, then are you and the other speculators controlling the market? Or, is it financial powers higher up controlling the gold market? My concern is that you and other speculators are studying the charts and will continue to be spot on; buying and selling, and then BOOM!! The guys at the top yank the chain and you and millions of other speculators get wiped out! Is this scenario feasible?
The market is controlled by a myriad of forces ... not just the "Managed Money" section of the COT report .. or the "Managed Money" + small speculators. But the "Managed Money" players consistently hold the dominant long positions in PMs. They are offset by the commercial hedgers as well as the "Swap Dealers". In a bull market, speculators are going to take profits. Nothing goes up or down in a straight line. When the traditionally long speculators take profits, you are going to have pullbacks.
Yes, the "Managed Money" has been taken to the cleaners often in the past (Silver and Gold). I do sense that the tables are turning ... as evidenced by JP Morgan throwing in the towel two weeks ago in Silver and leaving the local traders (whom were also in cahoots and short) in London out to dry. The pullbacks in June/July 2010 and November/December 2009 were also much less severe as in past years after large runnups in price.
As for myself, most of the trading portion of my portfolio (as opposed to my core long term investments) is strictly technical in nature. Which means I will go long or short (or sometimes simply go to cash), depending on what my trading systems tells me.
Brian
You are very well informed on these matters. Thank you for bearing with me.
