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Why QE3 Is Coming Next Week
TBI=Calculated Risk ^ | 9-9-2012 | Calculated Risk-Bill McBride

Posted on 09/09/2012 6:10:53 AM PDT by blam

Why QE3 Is Coming Next Week

Calculated Risk
Sep. 8, 2012, 10:29 PM

Since the Jackson Hole Symposium, I've been thinking it is very likely that so-called "QE3" would be announced at the next FOMC meeting (Sept 12th and 13th). And after thinking about Columbia University professor Michael Woodford's paper presented at Jackson Hole, I think this round of asset purchases might be more effective than most people expect.

Notes: QE3 is shorthand for another Large Scale Asset Purchases (LSAP) program. "QE" is monetary policy, not fiscal policy (not spending).

Yesterday, Goldman Sach economist Sven Jari Stehn beat me to the punch. He wrote:

[W]e expect the Federal Open Market Committee (FOMC) to announce a return to asset purchases as well as a lengthening of the FOMC’s forward guidance for the first hike in the funds rate to mid-2015 or beyond at the September 12-13 FOMC meeting. Our baseline forecast is an open-ended purchase program, focused on agency mortgage-backed securities.

[O]ur “double punch” Fed call relates to the much-discussed study presented by Columbia University professor Michael Woodford at Jackson Hole last Friday. Woodford argues that forward guidance is a powerful tool both in theory and practice. But in his view the effect of asset purchases is largely confined to their role in conveying guidance about future monetary policy actions. ...

We fully agree with Woodford’s view that such aggressive guidance measures could be a powerful tool. However, we also believe that Fed officials are unlikely to adopt them anytime soon.

Fortunately, we are somewhat more optimistic than Woodford with regard to the impact of Fed asset purchases. ... we believe that a more moderate strengthening of the forward guidance coupled with renewed asset purchases could provide a decent amount of monetary easing next week.

(snip)

(Excerpt) Read more at businessinsider.com ...


TOPICS: News/Current Events
KEYWORDS: bernanke; inflation; qe3; recession

1 posted on 09/09/2012 6:11:01 AM PDT by blam
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To: blam

QE3 is coming next week to help Great Leader be reelected.


2 posted on 09/09/2012 6:11:41 AM PDT by AD from SpringBay (We deserve the government we allow.)
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To: blam
Goldman Presents: The Case For A Fed 'Double Punch'
3 posted on 09/09/2012 6:12:26 AM PDT by blam
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To: blam

“Quantitative easing hasn’t been about jobs. If this was about jobs or stimulating demand, Bernanke would have aimed the helicopter drops at the wider public, as many economists have suggested. This policy of dropping cash directly to the banks is bailing out a dangerous and morally-hazardous financial sector and too-big-to-fail megabanks that remain dangerously overleveraged and under-capitalised, needing endless new liquidity just to keep past debts serviceable. There has been plenty of cash helicopter-dropped onto Wall Street, but nobody on Wall Street has gone to jail for causing the 2008 crisis. Criminal banksters get the huge liquidity injections they want, and the rest get less than crumbs.”

From: Bernanke’s Jobs Estimate

http://www.zerohedge.com/news/guest-post-bernanke%E2%80%99s-jobs-estimate


4 posted on 09/09/2012 6:19:39 AM PDT by Kartographer ("We mutually pledge to each other our lives, our fortunes and our sacred honor.")
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To: blam
"Quantitative easing" is nothing more than a euphemism for "printing money."

But of course, the euphemism itself has become alarming, so they'll find another term for it. But it's coming.

Got gold?

5 posted on 09/09/2012 6:23:59 AM PDT by southernnorthcarolina ("Better be wise by the misfortunes of others than by your own." -- Aesop)
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To: southernnorthcarolina

6 posted on 09/09/2012 6:40:06 AM PDT by blam
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To: blam
These Charts About The Global Economy Will Give You Cold Sweats
(The World Is Rolling Over)
7 posted on 09/09/2012 6:50:00 AM PDT by blam
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To: southernnorthcarolina

How to Destroy America 101

1. Inject money into the supply via “quantitative easing”
2. Watch the dollar be devalued
3. Watch interest rates go up
4. Watch the interest on the $16T debt spiral to a place where we couldn’t dig ourselves out even if we wanted to
5. U.S. defaults
6. Global war


8 posted on 09/09/2012 7:06:45 AM PDT by bolobaby
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To: blam
Our baseline forecast is an open-ended purchase program, focused on agency mortgage-backed securities.

I have the answer. It's code name is "Project Zimbabwe," or commonly referred to as...



QE∞




.
9 posted on 09/09/2012 7:18:50 AM PDT by TLI ( ITINERIS IMPENDEO VALHALLA)
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To: blam

The Obama Salvation Plan about ready to kick in.


10 posted on 09/09/2012 7:39:12 AM PDT by Iron Munro ("In any compromise between good and evil, it is only evil that can profit." - Ayn Rand)
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To: blam
IMHO, one of lifes great ironies is unfolding. The Fed's attempt to devalue the dollar and inflate the stock market in order to perpetuate the regime that wants to make us more like Europe will be undone by the slow motion train wreck Euro-disaster that IS Europe. As the Euro zone continues to convulse in its death throes the flight to “quality” (the dollar) will negate the effects of QE3. The Socialists in Europe are worried about their own necks and will stick them out for Obama. They are probably smart enough to realize that having a weak American economy is hurting them financially, and Europe will benefit from getting their American customers back with a stronger economy under Romney. Socialists eating their own, as it were.
11 posted on 09/09/2012 7:49:52 AM PDT by jdsteel (Give me freedom, not more government.)
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To: Iron Munro; All

Didn’t QE2 cause the price of gas and food to go up cause the value of the dollar went down???


12 posted on 09/09/2012 8:02:31 AM PDT by KevinDavis (Romney / Ryan 2012)
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To: blam

Just what we need. Another cruise ship /s!


13 posted on 09/09/2012 8:07:32 AM PDT by getarope (I have come here to chew bubble gum and kick ass, and I am all out of bubble gum!)
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To: AD from SpringBay
QE3 is coming next week to help Great Leader be reelected.

Yup. Keeping the markets boosted and climbing ever higher significantly improves Hussein's election chances. It really doesn't take much to fool the American people anyway, the majority of Americans now care more about their transfer payments or other freebies than the health of the nation.

14 posted on 09/09/2012 8:08:12 AM PDT by Longbow1969
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To: TLI
" I have the answer. It's code name is "Project Zimbabwe," or commonly referred to as... QE∞"

That is clever and based on reality and I wish I could say it was funny.

At one time in the past it would be very funny.

But now it has enough chance of being prophetic that I am not even snickering.

15 posted on 09/09/2012 8:23:48 AM PDT by Nik Naym (It's not my fault... I have compulsive smartass disorder.)
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To: Kartographer
I see these "quantitative easing" measures as a mechanism for shielding banks from a flaw in banking laws that pretty much puts these banks at a huge disadvantage against their customers.

What I'm talking about here is the fact that there is no such thing as a "fixed-rate mortgage" here in the U.S. This mortgage is only "fixed" to the extent that the borrower wants it to remain fixed. If interest rates fall, the borrower always has the option of refinancing the load and paying it off in whole to the previous lender (the bank). The bank, however, has no such leverage to protect itself in the event interest rates rise. As the S&L crisis of the 1980s showed us, the banking system cannot survive if interest rates rise and banks have to pay out higher rates on savings accounts and CDs even while they continue to service long-term mortgages at lower rates.

The idiotic run-up in home prices in the last two decades added another element to this huge, risky proposition for banks. In addition to extending mortgages with low interest rates, they were doing this for homes with inflated home values that couldn't be sustained over time. So in addition to the interest-rate risk I described above, these banks now faced a problem where the principal on these mortgages was at risk, too.

16 posted on 09/09/2012 8:44:58 AM PDT by Alberta's Child ("If you touch my junk, I'm gonna have you arrested.")
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To: bolobaby

Your post makes sense, but when does #3 ever happen? I mean, with this country currently operating at something like a 110%-115% debt-to-GDP ratio and $16T in debt that will never be repaid, who in their right mind would ever lend money to us — especially at the ridiculously low rates we’re seeing now?


17 posted on 09/09/2012 8:47:39 AM PDT by Alberta's Child ("If you touch my junk, I'm gonna have you arrested.")
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To: bolobaby

Interesting if 3 and 4 were even remotely close to being accurate. Rates are at all time lows and interest is less than 6% of the budget. And Opertion Twist has extended maturities out so that we have locked in extremely low long term rates on the current debt. The issue is that the budget is set to be dwarfed my Medicare, Social Security and Medicaid. Without reforming those they will consume 100% of the budget by 2040.


18 posted on 09/09/2012 8:57:38 AM PDT by Wyatt's Torch (I can explain it to you. I can't understand it for you.)
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To: blam

Buy gold now. Its going to go through the roof.


19 posted on 09/09/2012 9:02:33 AM PDT by Georgia Girl 2 (The only purpose of a pistol is to fight your way back to the rifle you should never have dropped.)
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To: Alberta's Child
...who in their right mind would ever lend money to us — especially at the ridiculously low rates we’re seeing now?

Dollar - "Hooker with crabs".

Euro - "Hooker with AIDS".

20 posted on 09/09/2012 9:03:55 AM PDT by DuncanWaring (The Lord uses the good ones; the bad ones use the Lord.)
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To: Alberta's Child

Yes there is no such thing as Fix Rate as the banks have been in collusion for years to ‘fix’ those rates.

Since you seem to have some insight maybe you can explain the government regulations that forced the nine largest banks have in excess of $220 trillion in derivative exposure. This is more than three times the size of the global economy?


21 posted on 09/09/2012 9:32:30 AM PDT by Kartographer ("We mutually pledge to each other our lives, our fortunes and our sacred honor.")
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To: blam

From the article: “we’ll try to return inflation to 2 percent at a pace which takes into account the situation with respect to unemployment.”

By that Bernanke clearly meant that if inflation starts to run 3, 4, or 5% but the economy remains in the doldrums, he would continue to maintain the very easing posture that is causing the higher inflation rate.

QE3, as with QE1 and QE2, accomplished only one objective; it drove long-term rates to ridiculously-low levels, not only here but around the world. Ironically, even as the U.S. Treasury was successfully extending the maturity of our outstanding debt (a wise move when rates are so low), Bernanke’s Fed was undoing all of that effort and more by buying the very bonds that the Treasury was selling.

And now he sits on trillions (yes trillions, not billions) of long-maturity debt that will plunge in value if he ever tries to unwind the position. Unfortunately it will also plunge in value if inflation gets really rolling again and they don’t stop it, which is exactly what he said he wouldn’t do unless the economy picks up also. But if the economy picks up, interest rates normally rise to ration credit.

In other words the Fed is screwed, and their bond position will cost the taxpayers more than the entire banking system debacle did, and could rival the housing price debacle in the end.

Anyone who lends money long term at 1.6% (10-year rate) to 2.8% (30-year rate) to the federal gov’t in this environment is crazy. QE3 might make you some money in the short term, but, in the long term, losses of 60 to 80% in a single year are possible when this fiasco blows up.

One of the greatest challenges a Romney/Ryan administration will face is how to unwind Bernanke’s mess without crashing the debt markets, driving interest rates up significantly, and adding to the federal deficit at an even faster rate as debt paying nearly zero interest now is rolled over at much higher rates in the future.

I’ll concede that this game has taken a lot more innings to play out than I would have imagined possible, but it’s nearing the ending soon and it isn’t going to be a pretty one.


22 posted on 09/09/2012 10:03:17 AM PDT by Norseman (Defund the Left-Completely!)
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To: Wyatt's Torch

>>Interesting if 3 and 4 were even remotely close to being accurate. Rates are at all time lows and interest is less than 6% of the budget. And Opertion Twist has extended maturities out so that we have locked in extremely low long term rates on the current debt.<<

3 could very well be accurate. It was a forecast, not a comment on the historical number.

As for Operation Twist, that was the Fed BUYING all the long bonds it could. Yes, the Treasury has been issuing longer debt lately and has extended the average maturity of the debt, but what’s the point if another arm of government (the Fed) is undoing the effort by buying all the long debt back in?

Besides, of the 10 trillion or so of public debt, about 7 trillion of it will mature before Romney finishes his first term. If inflation blows up and the Fed is forced to unwind it’s ridiculous QE’s, interest on the debt will be taking up a lot more tax dollars than it now does. If rates rise to 5-7% from their current .1 to 2.8% that 6% of the budget you’re talking about could rapidly approach 15% to 20% of the budget. And if inflation gets out of control and rates really start to accelerate, the interest on the debt will wipe us out long before Medicare, Medicaid and SS, especially since those programs will be taking in higher collections due to the higher inflation rate.

It’s the debt that is going to sink the country if we don’t soon get a handle on it, and that is going to be anything but easy to do. Bernanke has created a mess that is going to be very difficult to unwind and inflation is already picking up with no economic growth to show for it.


23 posted on 09/09/2012 10:21:12 AM PDT by Norseman (Defund the Left-Completely!)
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To: Norseman
"I’ll concede that this game has taken a lot more innings to play out than I would have imagined possible, but it’s nearing the ending soon and it isn’t going to be a pretty one."

Boy O Boy, do I agree.

Now, with the experience from this already drawn out affair, it's clear to me that 'they' can drag it out even further than you or I are expecting presently.

24 posted on 09/09/2012 11:05:31 AM PDT by blam
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