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QE3? What?

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December 08, 2010 – Comments (10)

For those who missed it, Helicopter Ben (Bernanke, the Hed Fed), was on 60 Minutes again on Sunday. In a brash moment, he said that if QE2 did not work, he was prepared to take further action; this was widely interpreted to mean that he was prepared to do QE3 if QE2 fails (and it will).

 QE stands for Quantitative Easing; in the old days, we called this printing money. Actually, Helicopter Ben does not actually print more cash, but he simply walks over to Excel, tappity-tappity at the keyboard, and voila: $600 billion appears out of thin air. The goal is this: the Fed buys Treasuries, forcing retail and institutional investors out of Treasuries and into stocks, bonds, business investment, and housing, increasing economic activity.

 Well anyway, this is the theory. Problem: this did not work the first time he tried it. Instead of using the money, the banks simply deposited the cash back at the Fed. So, there is a $1 trillion on ice at the central bank. What makes Helicopter Ben think that QE the sequel will work any better than the original movie?

 In an even more brash moment, Helicopter Ben stated confidently that he can withdraw the cash from the banking system before inflation sets in. Really? Right now it seems reasonable: deflation is a real threat, while inflation seems to be dead and buried. But I wonder: when the cold, hard cash on deposit at the Fed starts to thaw, it will be like a damn bursting. The cash will come flooding out all at once, rather than a manageable stream that Helicopter Ben seems to be assuming. I have no confidence that he can act fast enough or strongly enough to stem the flood.

Hyperinflation, anyone?

10 Comments – Post Your Own

#1) On December 08, 2010 at 11:46 PM, starbucks4ever (97.90) wrote:

Yes, hyperinflation.

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#2) On December 09, 2010 at 11:17 AM, miteycasey (30.75) wrote:

750 billion didn't work.

Another 500 billion didn't work...

I know lets throw another billion at the problem and hope it goes away.

The solution to this problem is the same as to the Education system in America.

You need to see how the populas views the issue, not the rich.

Money isn't the solution

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#3) On December 09, 2010 at 11:26 AM, davejh23 (< 20) wrote:

"The goal is this: the Fed buys Treasuries, forcing retail and institutional investors out of Treasuries and into stocks, bonds, business investment, and housing, increasing economic activity."

The problem is that they're not forcing anyone out of Treasuries.  We're still running a massive deficit...after having promised not to monetize the debt, the Fed doesn't want to buy directly from the Treasury.  Instead, the PD's buy the new issuance, and the Fed promptly turns around and buys Treasuries from the PD's.  Money may flow into the stock market to prop it up, but money is not being lent, and it appears that the QE2 efforts aren't even keeping interest rates down.  Stocks may hold up for a while, but real estate isn't just in for another mild leg down...it will crash from already depressed levels if interest rates continue to rise.  I don't think we'll ever hear QE3 discussed though...QE2 was left open ended...it will just become a perpetual program...expanded to $2 trillion, $5 trillion, etc...

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#4) On December 09, 2010 at 7:42 PM, Bkeepr100 (< 20) wrote:

Here's a good explaination of QE that most people can follow.

 

http://news.goldseek.com/GoldSeek/1291737900.php

Yes it is a little rough on the antimation, but as good a explaination that calls it what it is...Theft. 

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