Get Ready for QE3

[zarley]

Zarley you are wrong - QE is being used to to purchase government debt which was incurred as a result of fiscal stimulus.

 

I disagree.  There is simply not that much fiscal stimulus and it's hard to say how any spending is supported by the actions of the Fed.  We have structural deficits and a handful of counter-cyclical stabilizers, but very little in the way of stimulus spending.  Would the amount of current and planned government spending be more, less, or the same if QE2 didn't happen?  IMO, it would be about the same.  Absent QE2 would current treasury rates be higher or lower than they are now?  Again, I would guess they would be about the same possibly a bit higher (although the 10 yr rate has dropped slightly since the end of QE2). 

 

IMO, it was/is a mechanism for transferring money to the financials not supporting an expansion of federal spending.  It's all consistent with Friedman's critique of the failures of the Fed during the Great Depression -- which is monetarist scripture.

[moore_capital54]

Spoken like a true academic zarley. I bet you studied Economy at the University of Chicago or berkeley? I am on my way out to a dinner party so I am just going to say, that I think your explanation of the way the system works is naive at best. You act as though you did not witness the actions of men only a few hundred days ago when they rushed to conjure money at a pace never before seen and to do one thing and one thing only: SUBSIDIZE THE DEBTORS.

[beerbaron]

I don't understand why people say there will be QE3. QE2 aimed at lowering long term bonds rate so that lending would expand, it did not do any of the desired effect as it basically raised long term bonds as people were expecting more coming inflation from QE2. I'm sure Bernanke came to the conclusion that the long term bonds are better off being left alone. QE is not a fiscal stimulus.

 

BeerBaron

[bmichaud]

Last I checked this board is not called The Corner of Quantum and Brevan Howard. We're just trying to buy fifty-cent dollars!!!

[merkhet]

Looks like no QE3

[moore_capital54]

I don't think its that cut and dry Merkhet but I will also cede to Bmichaud and agree that this board isn't the kind of outlet for macroeconomic debate so I will just leave it at that :)

[moore_capital54]

Its been a little over 60 days and I have been proven dead right.

 

Not only did we get QE3 but we got it exactly the way I predicted. First the FED has been buying the longest dated treasuries which even the members of this thread agreed was as close to printing money as possible, but now today we see my other prediction is coming to fruition which is the creation of digital currency out of thin air to buy mortgages. My last prediction which was that they just buy ETF's was actually executed by the central bank of Japan which bought ETF's on the Nikkei to stem the Yens appreciation.

 

I am very happy with all these developments because they result in more money chasing the quality assets and businsses which I own.

 

But I hope you all now realize how crappy this system is long-term for the little guy who is trying to build wealth in years or decades and not days and weeks.

[original mungerville]

If we got QE3 I missed it. Are you talking the previously announced Operation Twist?...because they did not announce QE3 today.

 

I expect it to happen as you do and they announced that it is on the table today however they have not made the decision. In any case, I expect my silver,  gold and related minor bets to outperform the stock market. We are probably of a similar view on matters - not sure if you have listened to this funny related link:

 

[Rabbitisrich]

If we got QE3 I missed it. Are you talking the previously announced Operation Twist?...because they did not announce QE3 today.

 

I expect it to happen as you do and they announced that it is on the table today however they have not made the decision. In any case, I expect my silver,  gold and related minor bets to outperform the stock market. We are probably of a similar view on matters - not sure if you have listened to this funny related link:

 

No need for speculation. One thing you can say about Bernanke is that he has been transparent about his goals and willingness to use unconventional tools. In 2002, he laid out the blueprint:

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

  A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years).  The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields.  If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

 

If lowering yields on longer-dated Treasury securities proved insufficient to restart spending, however, the Fed might next consider attempting to influence directly the yields on privately issued securities.  Unlike some central banks, and barring changes to current law, the Fed is relatively restricted in its ability to buy private securities directly.¹²  However, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window.¹³

 

The Fed can inject money into the economy in still other ways.  For example, the Fed has the authority to buy foreign government debt, as well as domestic government debt.  Potentially, this class of assets offers huge scope for Fed operations, as the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt.¹⁶

 

  If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets.

 

 

Of course, Bernanke wrote that speech before facing the glare of publicity and before $1.5+ trillion diddly squatted on excess reserves.