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The financial markets are currently waiting for the Fed to announce QE3 or Operation Twist 2 either today or tomorrow. I don’t think either of these are coming. In fact, I think they’re not even on the table.

For starters, QE3 is off the table unless we see a market collapse or a major bank go under. That’s the truth, though the financial media refuses to accept it.

The reasons for this are both political and financial. From a political standpoint, the Fed particularly Ben Bernanke, has become politically toxic

Indeed, Bernanke and his loose money policies are now virtually synonymous with current President Barrack Obama’s spending and stimulus programs. Neither of these men or their policies are popular with the American people today. And it’s clear that both will be campaign issues going forward into the 2012 Presidential election.

Indeed, we’ve already seen one round of spending conflicts between the GOP and the President. True, it was mainly smoke and mirrors. However, the fact that the topic of Government spending is now being debated at all indicates that the political environment has shifted from one in which the Government was seen as the savior of the economy (as it was from March 2009 to the end of 2010) to one in which Government spending and deficits are perceived as a problem/ campaign issue.

That is a massive shift in political perspective. Only two years ago the Federal Reserve and Obama were thought to have saved capitalism and the US economy. Today, Obama’s polls are at new lows and the Fed has been openly criticized by three of the Republican frontrunners for the 2012 Presidential election (Perry, Bachmann, and Paul).

This is hardly a climate in which the Fed can unveil QE3 without some catastrophe striking first. On top of this, the Fed is also going to be facing increased political and likely even legal pressure from Wall Street in the near future.

First off, Goldman Sachs CEO Lloyd Blankfein has hired a criminal defense attorney… and not just any attorney, but Reid Weingarten. I’ll let the following portion of a Bloomberg article speak for this man and his track record.

Weingarten won the acquittal in May of Lauren Stevens, a former GlaxoSmithKline Plc (GSK) attorney accused of impeding a U.S. Food and Drug Administration investigation. He also represented Elizabeth Monrad, the former chief financial officer at General Reinsurance Corp. who was convicted in an accounting fraud scandal. She won a retrial earlier this month.

Weingarten previously represented former WorldCom CEO Bernard Ebbers, who was sentenced to 25 years in prison after he was convicted of an $11 billion fraud. He defended former Enron Chief Accounting Officer Richard Causey, who was sentenced to 5 1/2 years in prison.

If Blankfein is under investigation and hiring someone of Weingarten’s caliber, a massive legal storm is about to begin on Wall Street. These lawsuits will involve the US Federal Reserve. And when push comes to shove, Blankfein (and other Wall Street executives who broke the law) will be blaming Bernanke and the Fed.

After all, the easiest defense is for Blankfein and his kind to simply say that they were pressured into defrauding investors and the public by Bernanke and the Fed when the financial system imploded in 2008.

Given that the Fed is run by spineless academics while Goldman Sachs and other Wall Street firms are run by those who make a career out of profiting at other’s expense, who do you think will be going down when the legal dust settles?

Bernanke and the Fed.

The Fed already senses this and is moving to defend itself and shift the blame for the Financial Crisis to Wall Street. Consider that not long after Blankfein hired Weingarten, the Fed actually sued Goldman Sachs (GS).

The Federal Reserve announced an enforcement action against Goldman Sachs Group Inc., saying the company’s mortgage-servicing unit had engaged in “a pattern of misconduct and negligence” in its handling of home-mortgage loans.

The Fed’s action on Thursday seeks changes in mortgage-servicing practices and unspecified monetary damages. It came as Goldman reached an agreement with New York state banking regulators over wrongful foreclosures, allowing it to complete the Sept. 1 sale of its Litton Loan Servicing unit to Ocwen Financial Corp.

The significance of this development cannot be overstated. Goldman Sachs used to be one of the Fed’s favorite firms. Indeed, it could easily be argued that Goldman received the most preferential treatment from the Fed during the Financial Crisis.

Given just how close Goldman was to the Fed previously, the Fed/ Goldman relationship would only breakdown if an external threat meant that either group is going to be in MAJOR legal trouble (possible jail time). In light of Blankfein’s recent moves, as well as the Fed’s lawsuit against Goldman, I fully believe that this is the case and that the relationship between the Fed and Wall Street will be deteriorating further in the coming months.

In a climate of increased legal pressure such as this, the bar for QE3 is going to be much, much higher. It’s one thing if the Fed and Goldman Sachs were simply making critical statements about one another in public. But lawsuits/ legal actions are a totally different matter. In plain terms things are now getting very serious behind the scenes. And Bernanke will not be able to simply do as he pleases without consequence.

For this reason, it will take another catastrophe for the Fed to implement QE3. The days of the Fed implementing QE just for the sake of raising the stock market or affecting a “recovery” are over. It is clear now, even to those who have little financial understanding that Obama and Bernanke have essentially spent trillions of Dollars and accomplished next to nothing.

As a result of this, the Fed will be implementing large-scale moves ONLY in reaction to crises. Imagine the political impact it would have if the Fed were to unveil QE3 today or tomorrow with Oil already at $86 a barrel and food prices skyrocketing.

Indeed, I fully believe the Fed will disappoint in a BIG way today and tomorrow. With every one and their mother expecting QE3 or some other major program, the potential for MAJOR market upset is higher than ever before.

Indeed, I fully believe that we may be on the verge of a market Crash. Behind the scenes, the market is on DEFCON Red Alert. Ignore what the mainstream media and White House are saying, we are in BIG TROUBLE.

So if you’ve not already take steps to prepare for what’s coming, you need to do so NOW while the markets are still holding up.

Because once the selling pressure comes back into the markets… it’s going to be far FAR too late.

Source: The Market Is On The Edge Of A Cliff