Why QE3 Is Coming Next Week

TBI=Calculated Risk ^ | 9-9-2012 | Calculated Risk-Bill McBride

[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)

[AD from SpringBay]

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

[blam]

Goldman Presents: The Case For A Fed 'Double Punch'

[Kartographer]

“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

[southernnorthcarolina]

"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?

[blam]

[blam]

These Charts About The Global Economy Will Give You Cold Sweats
(The World Is Rolling Over)

[bolobaby]

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

[TLI]

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∞



.

[Iron Munro]

The Obama Salvation Plan about ready to kick in.

[jdsteel]

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.

[KevinDavis]

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

[getarope]

Just what we need. Another cruise ship /s!

[Longbow1969]

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.

[Nik Naym]

" 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.

[Alberta's Child]

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.

[Alberta's Child]

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?

[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. 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.

[Georgia Girl 2]

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

[DuncanWaring]

...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".