Posted on 04/26/2015 6:29:07 PM PDT by markomalley
Perhaps it was inevitable. After all, the term “QEfinity” entered the financial lexicon long ago and there were already quite a few commentators out there suggesting that it may now be too late to remove the punchbowl, meaning an “exit” will not only prove difficult, but may well be impossible.
Take Makoto Utsumi, who oversaw foreign-exchange policy at the Japanese Ministry of Finance from 1989-1991, for example. Utsumi recently said a BoJ QE exit was out of the question “for the foreseeable future” and went on to note that “even the thought of an exit is a nightmare.” Meanwhile, it’s virtually impossible to say what effect Fed tightening will have in both the Treasury and corporate bond markets given the lack of liquidity in both and then there’s EM where carnage unfolded in 2013 after a certain bearded bureaucrat said the wrong thing about the direction of Fed policy.
Given all of this, we’re not surprised to learn that in a new paper entitled “Let’s Talk About It: What Policy Tools Should The Fed ‘Normally’ Use?”, the Boston Fed is now suggesting that QE become a permanent tool at the disposal of the Fed. After all, “financial stability” depends on it…
During the onset of a very severe financial and economic crisis in 2008, the federal funds rate reached the zero lower bound (ZLB). With this primary monetary policy tool therefore rendered ineffective, in November 2008 the Federal Reserve started to use its balance sheet as an alternative policy tool when it began the large-scale asset purchases. Now attention is turning to how the Fed should transition back to a more conventional monetary policy stance. Largely missing from these discussions about the Fed's "exit strategy" is a consideration that perhaps it should retain, not discard, the balance sheet tools.
Yes, oddly missing from the Fed’s exit strategy is the idea that there should be no exit.
Of course the idea that what was previously “unconventional” policy should now become “conventional” is supported by Fed mission creep because now, the dual mandate has apparently become a “tri” mandate:
Since the Dodd-Frank Act (DFA) has added maintaining financial stability to the Fed's existing dual mandate to achieve maximum sustainable employment in the context of price stability, it might be beneficial to have several tools to achieve multiple policy objectives. An additional consideration is that some of these tools may be needed to stem future crises as a result of the DFA's new limitations on how the Fed can provide liquidity under such adverse circumstances.
The particularly amusing thing here is that if the Fed’s third mandate is promoting financial stability then they’re doing a rather poor job of it so far and asset purchases are the primary reason why. A lack of Treasury market liquidity contributed to last October’s Treasury flash crash and as we’ve pointed out on so many occasions that it now borders on the comical, nothing good can come from sucking every piece of high quality collateral out of the system. Meanwhile, keeping rates low has triggered a bonanza of corporate debt issuance just as the new regulatory regime has ensured that secondary corporate credit markets are just as illiquid as the Treasury market.
* * *
So yes, please retain QE as a permanent policy tool (as we always knew you would). It’s done wonders for demand and financial stability thus far.
This happened to us during the revolution too. It won’t be the first time the U.S. has experienced hyper-inflation. Any sane person would become a prepper if they haven’t already.
We have mathematically illiterate people setting monetary policy.
No problem, right?
The 17th Amendment needs to disappear.
It is certainly not impossible. It will just bring on the consequences earlier than continuing it will bring them on and by ending it now rather than later the consequences will be less onerous. It has goer on long enough that the consequences will be horrific now, later it will be horrific times several.
The problem is we are too far gone over the edge right now. The politicians are going to see at some time or have already seen that the only possible way out will be a major war in the league of the World Wars. Perhaps that is why Hussein is ginning up a nuclear war in the Middle East. No one can convince me he is “bumbling.”
In a few years you will be able to pay your mortgage off for the same amont as cup of coffee will cost!
Sure seems that way!
Except, of course, you won't have a job, your savings will have been wiped out, and you won't be able to buy a cup of coffee...
I don't know why every one keeps saying raise the rates, raise the rates yada yada when they want inflation!
I got coffee put up. I be sell coffee and bear sign!
ZIRP is Sharia compliant....no interest /S
People in debt are the winners of this game. Elders are screwed royally.
This is deflationary. Government takes more and leverage is suddenly removed. The only way for the first world governments to get the economy going again and have a chance of paying down their debts is by devaluation (just like Argentina). But that is hard to do when the leverage was snuffed out. Leverage is the same as printing money. But its the private sectors way of printing money.
You should expect the governments to force the banks to buy their debt. Once the banks are solvent, act two starts. That's when rates go up and the borrowers and bond holders (including the banks) scream bloody murder. Because its too big a penalty and will hit too many people, the governments will get weak kneed and keep the rates reasonably low for as long as possible. Welcome to the 1970s as inflation starts to grow. Growth stocks go up, bonds go down. Pensions pay out with devalued dollars. Tax revenue goes higher. Fixed incomes get killed, as do annuities. But this is a few years away. I say 2017.
New name for 'The Beast'. Fitting.
“The next step is to confiscate bank deposits.”
there’s no need to do that, all they need to do is deflate it’s value to zero with infinite money printing, which is happening as I sit here and type.
We already knew this. If interest rates returned to market level, the now $600 billion annual interest on $18 trillion would balloon to consume all federal receipts.
The Treasury has the authority to emit money at no cost, yet we “borrow” it from the Fed, which injects the funds, and then charges U.S. interest to borrow our own money. In the event of hyperinflation, the results are well-known. But what happens when a currency crashes and the “full faith and credit” of the U.S. requires us to repay tens of $$trillions in accumulated debt?
bump
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