The Next QE-3 Will Be In 2012
Almost everyone in the financial media is talking about the current quantitative easing program(QE-2) that is scheduled to expire in late June 2011. This is where the central bank, called the Federal Reserve, creates money and buys U.S. Treasuries. The Federal Reserve has bought about $500 billion dollars worth of U.S. Treasuries so far since the current QE-2 program began in November 2010. The Federal Reserve is scheduled to buy another $90 billion in U.S. Treasuries next month(June). Many economists and investors in the financial media are betting that the Federal Reserve will begin buying more U.S. Treasuries as soon as the current QE-2 program ends at the end of June. If we have learned anything from this group of bankers it is that they love to surprise the markets and will do anything to keep the stock markets inflated.
Here is how they will operate over the next year. The Federal Reserve will eventually have to take a break from purchasing U.S. Treasuries. The last time the Federal Reserve stopped creating cash reserves the stock market dropped like a rock, that occurred in late April 2010 through late August 2010. This time around, the Federal Reserve will simply let the current QE-2 expire, however, they will hint that are are planning a QE-3 whenever the stock market declines sharply. By doing this they can buy themselves some more time and hopefully see the price of commodities decline over the next year. It is the inflated commodity prices that keep the central bank from inflating the markets further. You see, the more cash reserves that the Federal Reserve creates the higher the prices of oil, gasoline, copper, gold, silver, cotton and almost every other commodity will be. By using rumors of a possible QE-3 throughout the rest of the year they will get the institutional money to buy the markets sporadically. Therefore, if the stock market does pullback or decline it will not crash and burn it will just decline gradually. Basically, they will use the boy that cried wolf theory until it no longer works, then they will actually implement QE-3.
Sometime in 2012 will be when the Federal Reserve will put the pedal to the metal and begin a massive QE-3 program. The central bank has been playing yo-yo with the U.S. Dollar for nearly a decade now. Simply put, the U.S. Dollar is the central bank's instrument of choice for inflating and deflating the markets. When they allow the U.S. Dollar to decline, the stock and commodity markets inflate higher, that is exactly what QE-2 does currently. If the U.S. Dollar Index rallies or trades higher then the major stocks and commodities simply deflate and trade lower. The next couple of years will be a traders market, however, the maestro behind the moves will be the Federal Reserve. Stay tuned and watch for QE-3 in 2012.