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Uncle Ben to the rescue!

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September 14, 2012 – Comments (7) | RELATED TICKERS: B , E , N

He came out guns a'blazin.  And he did so for a reason.  Congress has dropped the ball since the whole embarassing fiasco over the debt ceiling last year. Congress decided to go "on hold" waiting to see how the election results play out.

I know many hate the whole QE3.  I don't. I don't because I have cheered this man since the day he said he wouldn't let the banks fail back in 2009.  That comment was the reason why I bought Citibank for one dollar (tho it did drop to 97 cents after I bought it ;p).  It had to be done.  I know the Schiffites despise him.  I know the Kudlowites despise him.  But he has been the only person trying to do his darndest  to keep this country afloat after the market crash of 2008.

I understand what he is trying to do.  He is trying to fight deflation with inflation.  Kudlow shouts "strong dollar!"  Yet a strong dollar is something only a cash flush person wants.  A strong dollar is for when the economy is robust, not when it is tepid.

Kudlowites argue "trickle down" is what we need like the Reagan days.  Except Reagan was facing massive inflation, with dramatically different demographics (boomers where entering their prime) and where he INCREASED the budget deficit from $900 billion to $2.8 billion.  That's right Reagan engaged in massive deficit spending, which I submit was the right thing to do at that time. But Kudlowites do try to avoid mentioning that fact.

This Country is on hold because we follow a 2 party system that has no term limitations.  We are on hold because the career politicians are more interested in campaigning right now for re-election. So I cheer Bernanke, because, whether you agree with him or not, at least he is trying.

7 Comments – Post Your Own

#1) On September 14, 2012 at 10:54 PM, awallejr (81.57) wrote:

Bah 2.8 billion=2.8 TRILLION ;P

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#2) On September 15, 2012 at 9:31 AM, rd80 (98.33) wrote:

I fear QE3 is a huge mistake that will backfire. 

It may pull mortgage rates down a big, but is creating its own headwinds to do it. Look at what's happened in the few days since the announcement.  Oil prices up.  Agriculture commodities up.  Hard commodities up.  Ten and thirty year treasury yields up.  Dollar down.  If people have to spend more on food and energy, they have less to spend on manufactured stuff that creates jobs and people out of work have an even harder time.  If treasury rates go up, they'll put upward pressure on mortgage rates.

A rise in long term borrowing is one of the major headwinds Bernanke is creating if the trend holds. Maybe buying MBS will lower mortgage rates, or maybe it'll just push private and institutional investors into other assets.  And mortgage assets can be a tricky business.  Much of the mortgage activity over the past several years has been refinance - that creates a supply of new MBS, but returns prinicipal on existing securites almost as fast.

Then add in the continuing damage done to savers and retirees who need interest income.  

I think Bernanke's intentions are good, but believe QE3 will do more damage than good.  Earlier easing caused financial asset prices to rise, but didn't do much to stimulate the economy.  I don't see any reason to expect this plan to do anything different.

As a stock holder and someone able to refinance a mortgage if rates fall, I believe QE3 helps me more than it hurts me.  But I don't see it doing much good for someone who's looking for a job.

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#3) On September 15, 2012 at 4:02 PM, valuemoney (99.99) wrote:

rd80 I totally agree with you. I pry would have worded my thoughts much the same.

awallejr.... I can't really disargee with what you are saying either. The only difference is net net QE3 isn't that great of an idea. I would pry say QE2 wasn't either. QE1 was needed at the time along with everything else that was done.

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#4) On September 15, 2012 at 5:38 PM, somrh (86.37) wrote:

While I think inflation will be beneficial and I think it's important consider why it's beneficial. The primary goal, I presume, is to ease the deleveraging process. I'm skeptical that QE3 will facilitate that.

1) Banks don't need more reserves. They have plenty of reserves. 

The reality is that banks aren't lending. I suspect part of that has to do with the fact that with high unemployment/underemployment and overindebtedness, people aren't interested in taking on loans. And businesses don't see investment opportunities because there aren't adequate income (after debt servicing) to buy goods and services.)

And I think that's one key to creating inflation. From what I understand M2-M1 is a better indicator at predicting inflation than M0 is. Bernanke has little influence over that. 

2) Not all inflation is equal. Buying assets off of bank balance sheets is not the same as "dropping money from a helicopter". The reality is that (nominal) incomes need to rise to help facilitate deleveraging. I'm not convinced that the Fed buying a bunch of MBS is a good way to create that.

I suspect if Bernanke did actually drop money from a helicopter, it might facilitate develeraging better than altering the structure of bank balance sheets. But helicopter money drops is not exactly a Fed policy that I'm aware of. (I suppose Congress could facilitate that in the form of more "rebate checks".)

So I guess, like you, I'm sympathetic to inflation, unsympathetic to "trickle down" but still believe QE3 is, perhaps, misguided. 

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#5) On September 15, 2012 at 6:07 PM, awallejr (81.57) wrote:

Well they said watch out for inflation when QE1 begain.  And again when QE2 began, and now with QE3.  But so far, aside from temporary commodity spikes, it has been pretty quiet on the inflation front.

Oil has already been inching higher, largely on Middle East stability concerns I suspect.  And the US drought will have its impact on food prices in the future too I am sure.

As for hurting the savers, I disagree.  It only hurts those who just want to invest in cash holdings.  And that has been doing lousey since 2008. For years I gave people better choices on this site.

As for unemployment they say at 4-5% unemployment that is considered full employment.  So we are just 3ish% points from there.  The rest that do have jobs have actually seen their wages increase, albeit no where near  the growth the 1% enjoyed.

It would be nice if Obama's bill extending the Bush tax cuts for 93% of the people got passed since those are the people we really need to stimulate and that would diffuse this whole "fiscal crisis" call.  But that won't be happening at least until after the elections maybe.

So Uncle Ben is taking his shot.  I thought the QEs were working.  I think this year's slowdown had more to do with total Congressional gridlock since the summer of last year. I think the real estate market has been picking up.  I suspect Bernanke thinks so too.  And he is trying to fan that market hard now because a real estate uptick can do wonders for GDP.

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#6) On September 16, 2012 at 2:10 PM, Melaschasm (54.82) wrote:

I am not completely convinced that 'printing' money during recessions helps the economy.  However, it is a consistent response by the Fed, which makes it easier to invest.

In some ways I would rather the Fed forgive a chunk of US debt than give even more free money to the banks, but that is a different discussion. 

It is just semantics, but I believe Reagan increased the national debt from $900 billion to $2.8 trillion, rather than the annual deficit.

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#7) On September 16, 2012 at 11:20 PM, awallejr (81.57) wrote:

Yes Mela you are correct.  My bad for the confusion.  But I still thought that was the right thing to do at that time.  Just ironic that a Republican did it ;)

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