QE3 looming

swissaustrian

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Jim Rickards said:
#Fed Presidents say need more ease ... Last week Fed members said less ease. These guys have no idea what they’re doing.

Central Bankers Say They Are Flying Blind
rowing concern at the International Monetary Fund over the long-term side-effects of interest rates close to zero came as some of the leading figures in central banking conceded they were flying blind when steering their economies.

Lorenzo Bini Smaghi, the former member of the European Central Bank's executive board, captured the mood at the IMF's spring meeting, saying: "We don't fully understand what is happening in advanced economies." ...
http://www.cnbc.com/id/100650518
 

benjamen

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This guy's graphs on the "QE Trap" are excellent:
http://finance.yahoo.com/news/richard-koo-cant-anyone-refute-125046383.html

"The QE "trap" happens when the central bank has purchased long-term government bonds as part of quantitative easing. Initially, long-term interest rates fall much more than they would in a country without such a policy, which means the subsequent economic recovery comes sooner (t1). But as the economy picks up, long-term rates rise sharply as local bond market participants fear the central bank will have to mop up all the excess reserves by unloading its holdings of long-term bonds.

Demand then falls in interest rate sensitive sectors such as automobiles and housing, causing the economy to slow and forcing the central bank to relax its policy stance. The economy heads towards recovery again, but as market participants refocus on the possibility of the central bank absorbing excess reserves, long-term rates surge in a repetitive cycle I have dubbed the QE "trap."
 

Aubuy

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This guy's graphs on the "QE Trap" are excellent:
http://finance.yahoo.com/news/richard-koo-cant-anyone-refute-125046383.html

"The QE "trap" happens when the central bank has purchased long-term government bonds as part of quantitative easing. Initially, long-term interest rates fall much more than they would in a country without such a policy, which means the subsequent economic recovery comes sooner (t1). But as the economy picks up, long-term rates rise sharply as local bond market participants fear the central bank will have to mop up all the excess reserves by unloading its holdings of long-term bonds.

Demand then falls in interest rate sensitive sectors such as automobiles and housing, causing the economy to slow and forcing the central bank to relax its policy stance. The economy heads towards recovery again, but as market participants refocus on the possibility of the central bank absorbing excess reserves, long-term rates surge in a repetitive cycle I have dubbed the QE "trap."
A very good analysis. We also have two other forces interfering with the recovery. The first is the negative effect on the unemployment rate that was caused by extending unemployment benefits out to almost 2 years. Studies show that long term unemployed have a much harder time rejoining the work force. They also found that if you keep giving people unemployment, many of them will take the check, and stop looking for work (I know several people who did this exact same thing). So the policy works against having a quicker recovery. The second is Obamacare. Everyone I know with private insurance just had their insurance premiums double. This is going to be another major drag rippling through the economy.

So the fed is trapped. There is no exit and no escape. Ultimately it will lead to the end of the dollar as a reserve currency and increased inflation. The odds favor that the Fed will actually increase QE spending. We might even see negative interest rates for awhile before the whole thing unravels. There doesn't appear to be any other alternatives on the horizon. $.02
 

Jay

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A very good analysis. We also have two other forces interfering with the recovery. The first is the negative effect on the unemployment rate that was caused by extending unemployment benefits out to almost 2 years. Studies show that long term unemployed have a much harder time rejoining the work force. They also found that if you keep giving people unemployment, many of them will take the check, and stop looking for work (I know several people who did this exact same thing). So the policy works against having a quicker recovery. The second is Obamacare. Everyone I know with private insurance just had their insurance premiums double. This is going to be another major drag rippling through the economy.

So the fed is trapped. There is no exit and no escape. Ultimately it will lead to the end of the dollar as a reserve currency and increased inflation. The odds favor that the Fed will actually increase QE spending. We might even see negative interest rates for awhile before the whole thing unravels. There doesn't appear to be any other alternatives on the horizon. $.02
why look for work when you can make 10,000 a year MORE on welfare than working? I don't blame them. (at least according to the government statistics). Philippines lifestyle, here we come! You may get ONE job in your lifetime, and twenty people will depend on that income. (cue "do the hussle")
Oh, I forgot. We're number 1. Could NEVER happen to us.

edited to add, folks who believe there is going to be a "recovery" are in full flight of reality.
 

pmbug

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...
Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

And the impact? Even by the Fed's sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working.

Unless you're Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets.
...
More: http://www.zerohedge.com/news/2013-...ses-aplogizes-i-can-only-say-im-sorry-america
 

rblong2us

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Pity the writer is anonymous .........

It would have a lot more impact if we could be sure it was written by someone working at the highest level at the Fed.
 

pmbug

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Author isn't anonymous.
By Andrew Huszar, also posted at the WSJ. Mr. Huszar, a senior fellow at Rutgers Business School, is a former Morgan Stanley managing director. In 2009-10, he managed the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program.
 

Aubuy

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"The FED spent 4 Trillion dollars and all I got was this lousy shirt!" :mad:
 

rblong2us

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Thank you gents.

I see what I did there -

I read the headline paragraph that didnt reference the author then clicked to read the rest of the article and failed to spot the intro ........
 
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pmbug

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OK. So if Goldman Sachs is a leading indicator for cynics, one can expect the Fed to double QE and introduce negative rate IOER very soon. :eek:
 

pmbug

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