Pento:  “Of course the Fed lowered the amount of monthly purchases to $25 billion mortgage-backed securities and $30 billion Treasuries, for a total of $55 each month.  This was already in the cards and didn’t surprise anybody....

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“The Fed also eliminated the 6.5% unemployment threshold, where they said they would raise interest rates.  So there is no longer any numerical threshold, and the reason for this, Eric, is the Fed cannot raise interest rates. 

The condition of the U.S. economy and indeed the whole world is so anemic that even after 5+ years of massive Federal Reserve manipulation of money supply and interest rates, that the Fed cannot raise short-term interest rates.  In other words, they will keep making excuses and moving the goal posts as to why they can never raise interest rates.

So the Fed is in the process of trying to end QE, but what the stock market doesn’t know is this is causing the long-term interest rates to rise.  For instance, the 10-Year jumped to 2.76% as of this interview with you.  And short-term rates are rising to an even greater extent.

The Federal Reserve’s quantitative easing program is the only reason why the 10-Year Note and longer-term interest rates are as low as they are today.  Ending QE will cause a huge spike at the long-end of the yield curve.  Whether or not the Fed admits that or not is irrelevant.

The fact is the Fed is going from buying all of the newly issued debt market, to zero of the newly issued debt market.  And there isn’t any entity that I am aware of in the entire world that will supplant the Fed’s purchases.  So interest rates are going to rise sharply, and that is deflationary in the short-term, and also bullish for the U.S. dollar in the short-term.

But the deteriorating and anemic data will continue to worsen as interest rates rise.  This means that the Fed will stop tapering some time in the very near future -- probably in the summer or early fall -- and then they will have to reverse QE.  When this shift in policy takes place it will be incredibly significant for the world markets -- beyond anything we have seen before.”

Eric King:  “Gold was taken down in advance of this news from the Fed, and it’s getting hit a bit more since the news was released.  What about the price of gold going forward?”

Pento:  “The gold market has already put in a major bottom and will continue to gradually rise.  The miners have priced in a worst case scenario -- a balanced budget and no growth in the money supply.  That’s clearly not going to happen.

But I’ve said all along to KWN readers around the world that the big spike in the price of gold and the mining shares, which are headed higher, will come when the Fed acknowledges the fact that there is no escape from QE and we are headed into a deflationary depression without the Fed’s support in long-term interest rates.  So the Fed will stop tapering and admit to a massive and extended QE, and that is when you will see the price of gold, silver, and the mining shares really scream higher.”

Michael Pento: President & Founder of Pento Portfolio Strategies and the author of

“The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market”

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IMPORTANT - KWN has many more interviews being released today.

The audio interviews with Gerald Celente, Egon von Greyerz, Eric Sprott, David Stockman, Michael Pento, Bill Fleckenstein, Dr. Paul Craig Roberts, Grant Williams, Andrew Huszar, Art Cashin, John Mauldin and Dr. Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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